Coal India shares at Rs 340? Nuvama upped target for stock post management meet

Coal India shares, which gained 7 per cent in 2023 so far, have received upward revision in stock price target by Nuvama Institutional Equities, as the brokerage believes costs related to employee wage revisions have peaked and that a growth in volumes is underway.

The brokerage met Coal India Chairman Mr Pramod Agrawal, who felt that costs have peaked out and expects 8–9 per cent YoY FY24E volume growth. He is also optimistic of price hikes under the FSA in FY24, Nuvama said.

While investors await a hike in base price of coal under fuel supply agreement (FSA), Coal India has been quietly enhancing blended coal prices under FSA since FY21. The FY23 average FSA price was Rs 1,475 per tonne against Rs 1,379 in FY21.

"Besides improved product mix, higher performance incentives, increasing proportion of linkage auction coal (40 per cent higher price than FSA coal to power) helps in increasing blended coal prices under FSA. We await hike in base price of FSA coal. We now factor in a 6 per cent hike in FSA base price in FY25E," it said.

Nuvama said e-auction price, though fell from highs, is still higher than its historical average. It is factoring in Rs 3,000 e-auction price for FY24 and Rs 2,035 for FY25.

The brokerage said sustained volume growth of 6 per cent CAGR over FY23-25 to provide benefits of operating leverage. Besides, high dividend yield (DPS Rs 20, yield 8 per cent), cheap valuation (2.4 times FY25E EV/Ebitda, last five-year average of 3.5 times) and potential price hikes under FSA exist, it said.

"We have already factored in lower e-auction prices. With the fall in e-auction prices and end of general elections by Q1FY25, we conservatively factor in a rise in FSA coal price by 6 per cent in FY25. With that, we raise our FY24E/FY25E Ebitda by 4 per cent/24 per cent and TP to Rs 362 (from Rs 301), valuing at 4.5x FY25E EV/Ebitda," it said.

On Thursday, the stock was trading at Rs 241.25, down 0.14 per cent. Nuvama's target suggests a 41 per cent upside potential over this price.  

 

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