Coal India Ltd reported a better-than-expected Q2 results, thanks to higher-than-expected coal prices and lower-than-expected employee cost. 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.
“In line with the strong performance, improved outlook on volume, e-auction premiums, and lower costs, we have increased our Ebitda estimates by 16 per cent/13 per cent for FY24/FY25. The stock is trading at 4.1 times on FY25 EV/Ebitda. We retain our BUY rating with a revised target price of Rs 380, valuing the stock at 5 times FY25E EV/Ebitda. Coal India remains our top pick in the mining sector,” Motilal Oswal Securities.
The brokerage said profit for Coal India grew 13 per cent YoY to Rs 6,800 crore against its estimate of Rs 5,000 crore, led by driven operating performance and lower depreciation. Ebitda rose 11 per cent YoY to about Rs 8,900 crore and was 54 per cent above the brokerage estimate of Rs 5,800 crore, owing to lower-than-expected employee costs.
Though the e-auction premium cooled off from the peak, it is still above its historical average and is expected to be around 80-85 per cent for FY24E, the brokerage said.
“Contrary to our expectations of a 6 per cent YoY dip in Q2FY24 Ebitda, Coal India delivered 11 per cent YoY growth, courtesy higher-than-expected coal (FSA, washed coal) prices and lower-than-expected employee cost,” said Nuvama Institutional Equities.
The brokerage said higher FSA prices, improved volume, an increase in e-auction prices and peaking out of costs are likely to drive Coal India’s earnings in H2FY24.
This brokerage has revised its FY24E and FY25 Ebitda by 5 per cent and 7 per cent to factor in higher e-auction prices. “We value CIL at 4.5 times FY25E/26E average, which ratchets up its fair value to Rs 404 from Rs 389 earlier), excluding FY24E/25E dividend per share of Rs 30/25. Any weakness in the ESG framework would unleash a major re-rating of the stock,” the brokerage said.
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