Coal India shares: 70% rise in 2023, analysts see further upside on this dividend-paying PSU stock

A couple of brokerages sees further rise in shares of Coal India Ltd, even as the dividend- paying stock delivered 70 per cent return in the year gone by. Coal India's stock valuation at 7 times FY2026 earnings per share (EPS) is attractive, and the stock offers a high dividend yield of 8-9 per cent, said Sharekhan, which has retained its 'Buy' rating on the stock with a revised target price of Rs 440.

A potential stake sale in Bharat Coking Coal Limited (BCCL) and subsequent listing would unlock value, the brokerage said.

Motilal Oswal Securities said Coal India has intensified its focus on capex that would improve its evacuation infrastructure. Capex, which used to hover around Rs 6,500-8,500 crore until FY20, tripled in FY23 to Rs 18,600 crore.

"Over the last three years, capex has exceeded budget estimates. Coal India trades at an EV/adjusted FY26 Ebitda of 4.2 times. We roll forward our estimates to FY26. We reiterate our BUY rating on the stock with a target of Rs 430 (premised on 5 times FY26E EV/Ebitda). We believe Coal India is well placed to capitalise on the growth opportunity ahead," this brokerage said.

JM Financial said coal prices surged in 2022 due to supply constraints and geopolitical tensions. Coal demand peaked in 2023, driven by factors such as the Russia-Ukraine war, leading to increased coal usage in the EU.

China's unofficial ban on Australian coal and Indonesia's export restrictions further spiked coal prices, but the situation is normalising, with the EU shifting back to gas and renewable capacities increasing in China, it said.

"India is progressively emphasising on outsourcing mining, with Coal India Limited (CIL) aiming for 90 per cent of mining to be conducted by Mine Developer and Operator (MDOs) in the next 5 years. Additionally, CIL targets $3 billion in investments by FY29 to enhance the first-mile connectivity of mines, incorporating pipe conveyors with a combined capacity of about 764 MTPA," it said.

The brokerage said it had a 'Buy' rating on Coal India with a target price of Rs 360, which has been achieved and is under re-evaluation.

Sharekhan said Coal India's coal production guidance implies a strong CAGR of 12 per cent over FY23-26. It said E-auction premium has improved to 80-100 per cent in the last four months and the same bodes well for blended realisation and margin of Coal India. The company targets to have 15 per cent of e-auction volume share in H2FY24 versus 9 per cent in H1FY24, the brokerage noted.

Motilal Oswal said Coal India sells 10 per cent of its total volume via auction-determined prices. It expects the PSU to sell 72mt through e-auctions in FY24, 76mt in FY25 and $88mt in FY26.

Also read: Bank of Baroda, Kalamandir, SAMHI Hotels among 5 picks from Nirmal Bang for 2024

Also read: Stock recommendations by market analyst for January 1, 2024: Dabur India, Suven Pharmaceuticals and Samvardhana Motherson