Coal India shares up 57% in 6 months; stock price target Rs 404, says Nuvama

Shares of Coal India have climbed 57 per cent in the six months amid rising power demand leading to volume growth, higher e-auction prices and cost peaking out. For November, Coal India's volume remained high at 63.1 million tonnes but its growth rate normalised (up 6.2 per cent YoY) due to a high base and festive season.

Nuvama Institutional Equities said average e-auction premium spiralled down from 118 per cent in October 2023 to 83 per cent in November, as volumes soared under e-auction while global coal prices contracted.

The domestic brokerage said Coal India's volume is on track to meet its FY24 volume estimates of 752 mt, requiring 7 per cent YoY growth in December 2023–March 2024.

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"Though e-auction price cooled off in November, higher volume compensated, to a certain extent. Despite a fall in e-auction prices in November, average e-auction prices should be 10 per cent higher in H2FY24 versus Q2FY24. As a result, we shall see higher Ebitda in the next two quarters and do not see any risk to our numbers," Nuvama said.

The broking firm said the consensus is expected to increase estimates further by at least 10 per cent, which could be at time of Q3 results. Nuvama anticipates 6 per cent volume CAGR during FY23-26 as higher power demand provides earning visibility until FY30. Any weakness in the ESG framework would unleash a major re-rating of the stock, it said.

The stock i trading at 3.9 times FY25E EV/Ebitda, which is against a 10-year average of 5.5 times. For now, the brokerage has a target of Rs 404 on the stock. The target suggests a 13.3 per cent potential upside on the stock over its Wednesday's intraday price of Rs 356.50.

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