Coal India stock rating ‘Buy’: Increased demand, output to help, say brokerages; check share price targets

Domestic brokerage and research firms recommend adding Coal India Ltd shares, with a potential upside of as much as 30% over the current price, helped by high demand and increased output. High international prices leading to an increased demand for domestic coal will help Coal India Ltd, coupled with the company’s output growth in the coming year, Axis Securities, ICICI Securities and Motilal Oswal said in their respective research notes.

Coal India share price jumped 4% intraday, and ended at Rs 256.85, after the company reported its fiscal second quarter net profit more than doubled on-year to Rs 6,044 crore. Coal India stock has gained 65% year-to-date. Here’s why the brokerages are bullish on Coal India Ltd stock:

– Recommendation: BUY– Target Price: Rs 325 (up 30%)

ICICI Securities

– Recommendation: BUY– Target Price: Rs 294 (up 18%)

Axis Securities

– Recommendation: BUY– Target Price: Rs 275 (up 10%)

International Prices and Domestic Demand

Axis Securities said the mild European winter and built-up inventory has led to a correction in coal prices, but it is still high on a YoY basis. ICICI Securities said that due to the higher international coal prices, the demand for domestic coal has increased and will continue to rise, resulting in CIL showing higher growth.

Upgraded E-Auction System

Coal India Ltd updated its e-auction system and merged various methods of conducting auctions into one portal, which has led to “improved price discovery of coal and has resulted in a structural shift in e-auction premium”, said Motilal Oswal. ICICI Securities and Axis Securities expect the e-auction volumes will increase, thereby raising the premiums from next quarter.

Volume Growth

Brokerages believe that Coal India will demonstrate high volume growth in FY24. While the government has mandated the production of 840MT of coal, Axis Securities has modeled lower volumes, clocking in at 750MT, while ICICI Securities pegs it at 730MT.

Renewable Energy

Motilal Oswal remains bullish on coal as a form of energy over renewables, saying, “Renewables continue to be unreliable with problems either related to (a) availability, (b) costs, (c) storage or (d) safety. As a result, dependence on coal is likely to increase in the near term whether investors prefer the same or not.” Moreover, their report adds, “We believe the world has come to terms that fossil fuel cannot be ignored, at least in the near term.”

Additional Factors

Coal India has announced an interim dividend of Rs 15, while Motilal Oswal predicts the final dividend of Rs 26.7 for FY23. A factor that could impede the stock’s growth is the higher monthly wages.