Coal India shares, dividend: Should you buy this beaten-down PSU stock?

Stock analysts have turned positive on Coal India Ltd shares following a 28 per cent slide on the counter from its 52-week high level. Coal India is a beneficiary of the uptick in power demand and initiation of capex on coal-based power plants, they said while citing its decent dividend yield of 6 per cent and likely volume and margin upticks as key catalysts for the stock going ahead. They see the Coal India stock in the Rs 525-560 range over the next 12 months. 

Over the past 12-18 months, investors were enthused by the large-cap stock delivering volumes growth CAGR of 7-8 per cent, alongside an improving demand outlook resulting in solid earnings momentum. Emkay Global said it also subscribed to the narrative for Coal India, before the growth air-pocket in recent months weakened that thesis. This brokerage expects Coal India to miss its FY25 guidance by 35-40mt or 4.5 per cent, and, thus, reduce its volume estimate to 800mt. 

That said, there has been news flow around progress on captive coal mines that could displace e-auction volumes. 

"In our assessment, these captive mines could produce 26mt in FY28E, displacing a third of the e-auction offtake. All that said, we think the concerns are broadly in the price, whereas the medium-term demand growth outlook and project delivery catalysts are well-placed. We, therefore, reiterate our BUY rating, albeit at a reduced target price of Rs 525," Emkay Global said.

For December, Coal India said its production was up 0.8 per cent YoY and offtake 2.5 per cent YoY. For 9MFY25, the production volume was up 2.2 per cent YoY while offtake volumes was up 1.7 per cent YoY. 

The past three quarters of FY25 has been contrasting, wherein the off take grew at a stable 5 per cent in Q1FY25, declined 4 per cent in 2QFY25 due to higher monsoon, but stood at 1 per cent. 

Antique Stock broking said the softness in volume offtake is going in line with power demand in the country with power demand growth in Q1, Q2 and Q3 at 11 per cent, 1 per cent and 2 per cent. 

"We have revised Coal India FY25E volume estimate by 1 per cent to 788mt for FY25E and this has resulted in cut in Ebitda estimate by 2-3 per cent over FY25-27E. And target price is revised to Rs 539 from Rs 598. On our revised FY25E estimate of off-take, implied growth for Q4FY25 is 13 per cent YoY (i.e. incremental 26mt)," Antique Stock Broking said.

"We understand this will be driven by factors like uptick in demand in Q4FY25, build-up of inventory. The company has announced an interim dividend per share of Rs 15.75 against FY24's dividend per share of Rs 25.50. Based on cash flow, we see FY25E DPS of Rs 25 which implies a dividend yield of 6 per cent," Antique Stock Broking said. 

The brokerage while suggesting a 'Buy' on Coal India said the catalyst for the stock is the uptick in volume offtake and margin boost led by higher e-auction realisation. Imported coal prices are stable and is positive for e-auction realization of Coal India, it added.

Sharekhan in a note last month suggested a target price of 560 for Coal India. It said the stock at a valuation of 6.4 times its FY26 earnings is attractive and the stock offers a high dividend yield of 6 per cent. 

"Good volume growth in coal offtake of over 8 per cent is expected  in the next few years due to the demand in the power sector. Also, the potential  stake sale in Bharat Coking Coal Limited (BCCL) along with a potential listing could  help unlock value," it said.