India’s largest mining company Coal India Ltd. gained over 4 per cent after Jefferies India and a host of other brokerages upgraded the stock and raised their target prices on the back of better-than-expected September quarter earnings by the state-run miner.
Analysts noted that power demand usually peaks in May due to summer heat waves but a drier monsoon and high economic activity this year kept the demand elevated for Coal India, which is a seasonally weak quarter. Considering the huge demand from the power sector, Coal India has maintained its FY24 target dispatch to the power sector at 610 million tonne. Analysts said they see further improvement in performance the second half of financial year.
The stock hit a high of Rs 347.50 on the BSE and gained as much as 4.4 per cent intraday. At 12.20pm, the stock was trading at Rs 345 on the BSE, up 4.2 per cent from its previous close.
Brokerage firm Jefferies has upgraded the PSU company to “buy” from its earlier rating of “hold.” Additionally, the brokerage has raised the price target for Coal India to Rs 385 per share, a notable increase from its earlier valuation of Rs 240.
This upgraded target suggests a potential 16 per cent upside from the closing levels observed on Sunday, marking the stock’s highest closure in six years.
According to Jefferies, Coal India’s robust 12 per cent volume growth played a pivotal role in mitigating the impact of reduced e-auction prices and increased staff costs. The company reported a noteworthy 9.2 per cent FSA (Fuel Supply Agreement) volume growth, reaching 154.7 million tonnes compared to 141.6 million tonnes in the previous year.
Jefferies believes that Coal India’s volume growth trajectory has improved and is likely to sustain amidst India’s rising power demand, while the big impact of wage hikes and a fall in e-auction prices has already come.
Jefferies has upgraded Coal India’s financial year 2024-2026 Earnings Per Share (EPS) estimate by 18 per cent to 42 per cent and is now expecting a 5 per cent Compounded Annual Growth Rate (CAGR) for its EPS over the financial year 2023-2026, despite a high base.
Coal India’s shares have rallied 8 per cent over the last month and nearly 40 per cent over the last three months. It was among the top Nifty 50 gainers in 2022 as well. Despite this, at 6.4 times the financial year 2025 price-to-earnings, the stock is trading at reasonable valuations, as per Jefferies.
17 out of the 23 analysts who track Coal India continue to have a “buy” recommendation on the stock. Nuvama has the highest price target on the street for Coal India of Rs 404 per share. Jefferies’ target of Rs 385 is the fourth highest on the Street.
Shares of Coal India have risen nearly 50 per cent so far in 2023.
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