Coal India shares are inexpensively valued and trade at a steep discount to historical averages. Post the state-run miner’s doubling of September quarter profit, a host of brokerages have revised upward their price targets and suggested up to 30 per cent potential upside for the stock over the next 12-months.
The PSU firm reported a net profit of Rs 6,043.99 crore for September quarter compared with Rs 2,932.73 crore in the corresponding quarter last year. Sales for the quarter jumped to Rs 27,538.59 crore from Rs 21,292.50 crore in the year-ago quarter.
“We believe the consensus will continue to upgrade Coal India’s FY23 estimates, driven by strength in the e-auction premiums. We are almost 20 per cent higher than the consensus on FY23 estimates and expect consensus to continue to catch up,” said Motilal Oswal which has a target 325 on the stock.
The brokerage said the world has come to terms that fossil fuel cannot be ignored, at least in the near term, noting that the under-investment by developed economies in the last decade has proven expensive with no alternate sources of Russian LNG in sight other than coal.
“Renewables continue to be unreliable with problems either related to availability, costs, storage or safety. As a result, dependence on coal is likely to increase in the near term whether investors prefer the same or not,” it said.
The stock trades at inexpensive valuations of 3 times FY23 EV/Ebitda and 4.8 times FY24 EV/Ebitda, analysts said. Besides, on PE basis, Coal India stock trades at a steep 38 per cent discount to its 10-year trailing 12-month PE average.
Numava Institutional Equities expects Coal India’s Ebitda to fire up 33 per cent in H2FY23 vis-a-vis H1FY23’s on the back of higher e-auction prices as well as sales volume. The brokerage has upped its target for the stock to Rs 308 from Rs 275 earlier.
“E-auction prices aside, higher dividend (8–12 per cent yield) shall keep investor interest in the stock alive,” it said.
Along with its Q2 results, Coal India announced an interim dividend of Rs 15 per share. ICICI Securities is expecting two more payouts in FY23. It believes that dividend yield will be 9-10 per cent of the current market price.
“We believe Coal will continue to perform well as factors that were at play in the past two quarters will continue – high thermal power demand, high international coal prices and subsequent increase in demand for domestic coal,” it said while suggesting a target of Rs 294 for the stock.
On Wednesday, the scrip rose 5.56 per cent to hit a high of Rs 263.30. The price targets on the counter suggest up to 30 per cent upside over Monday’s closing price of Rs 249.50.
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