Target: ₹430
CMP: ₹380.85
To meet the increasing demand for coal in the power sector while urging the government to ensure reliable 24×7 power supply, Coal India (COAL) has made a long-term commitment through FSA arrangements. Based on YTD performance, COAL is targeting production of 780 million tonnes in FY24 and 850 million tonnes in FY25.
COAL sells approximately 10 percent of its total volume through auction-based pricing and we expect the company to sell approximately 72 Mt/76 Mt/88 Mt through e-auction in FY24/25/26. The e-auction premium, which declined in July 23 after peaking at 329 percent in the second quarter of fiscal 2023 (in line with falling international coal prices), has risen again.
The revival of demand and the increase in international prices have pushed the e-auction premium to levels of 80 to 100 percent in recent months.
COAL has increased its focus on investments that will improve its evacuation infrastructure. Capital expenditure, which was around ₹6,500-8,500 crore till FY20, tripled to ₹18,600 crore in FY23. In the last three years, capital spending exceeded budget estimates.
COAL is marked with an EV/Adj. traded. EBITDA of 4.2x FY26. We roll over our estimates to FY26. We reiterate our Buy rating on the stock with a TP of ₹430. We believe COAL is well positioned to capitalize on the growth opportunities ahead.
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