Coal India Stock Price Forecast: Brokerage firm Motilal Oswal has projected a 21 per cent upside for Coal India and has upgraded the target price to Rs 700 per share. The brokerage firm believes that Coal India’s production outlook looks robust, driven by powerful volume growth in the coming years fuelled by rising demand from the power sector along with strategic improvements in coal dispatch mechanisms.
Strong growth in volume and demand in the electricity sector
Coal India has maintained stable production, especially this year. In August 2024, it produced 46.1 million tonnes, down 12 per cent from the same period last year, due to erratic monsoons in major coal-producing states such as Odisha, Jharkhand and West Bengal. However, during the April-August 2024 period, the company’s production stood at 290 million tonnes, up 3 per cent from the same period last year, while shipments rose 1 per cent to 308 million tonnes.
The thermal power industry remains the major driving force of demand, with 81 per cent of Coal India’s total dispatches going to that sector during April-August. The company is targeting a production level of 838 million tonnes by FY25 and e-auction volumes of 15 per cent of total dispatches. Hence, growth in volumes can be expected to be supported by growth in power demand on account of rising energy demand from India. GDP Moreover, thermal generation capacity continues to increase: 5.7 GW in fiscal year 2024 and another 29.4 GW is likely to be added by November 2028.
Higher volumes of electronic auctions will boost the realization
Coal India’s strategy of increasing the share of its e-auction volumes will help improve overall realisation. Around 70 million tonnes were sold through e-auctions in FY24 at a 99 per cent premium over FSA prices. However, while e-auction premiums fell to 58 per cent in Q1 FY25, rising e-auction volume share helped partially offset the impact. Looking ahead, Motilal Oswal believes the e-auction premium would now stabilise at around 60 per cent on the back of rising market demand supported by recent global trends.
Record investment in infrastructure
To sustain growth, Coal India has significantly increased its capital expenditure and has budgeted Rs 16,700 crore for FY24, with plans to invest Rs 17,500-18,500 crore in FY25-FY26. The money invested will go towards improving the evacuation infrastructure, adding new rail corridors and setting up new coal washeries. This expansion will not only support Coal India’s volume growth but will also increase the quality of coal supplied to the market.
Valuation and financial performance
Motilal Oswal has reiterated its revenue and EBITDA estimates for Coal India for FY25 and FY26, with revenues expected at Rs 1,49,700 crore for FY25 and Rs 1,69,400 crore for FY26. The stock is trading at an attractive FY26E EV/EBITDA of 4.7x. Given Coal India’s dominant domestic position in the coal sector and favourable demand outlook, the brokerage firm has reiterated its ‘Buy’ rating while upgrading the target price to Rs 700. This implies a significant upside over the current Rs 497.
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