AnandRathi bullish on this Maharatna PSU giant with investor-friendly dividend policy

Domestic brokerage AnandRathi has initiated coverage on PSU Maharatna Coal India with a buy and a 1-year target price of Rs 520. The suggested new target price on the stock implies a potential upside of over 17 per cent from the last close.

Coal India is the largest pure-play coal producer globally, offering healthy volume assurance, catering to mounting coal demand from the power sector. Its focus on increasing fuel-supply agreement (FSA) and e-auction volumes would be catalysts for a strong performance, noted the brokerage.

The company has taken many cost-saving measures, along with evacuation and infrastructure-improvement projects, seen to drive greater productivity.

Furthermore, the brokerage is bullish on the company's volumes and says that volume momentum shall continue.  In FY24 the company reported its highest sales, of 753.5m tonnes, on record dispatches to the power sector. While its offtake in the domestic market stoods strong, the company aims at a sales target of 838 million tonnes for FY25.  "Strong demand from FSA and e-auction along with enhanced coal washeries will eventually help it cross 1bn tonnes production in the next 2-3 years," noted the brokerage.

Also, the company's cost control measures are accoladed by the brokerage and it expects the employee cost per tonne to decline to Rs 595 in FY25 and to Rs590 in FY26 (vs the five-year Rs660 average).

So, considering all the favorables including the company's focus on ramping up volumes, various cost-control measures, investor-friendly dividend policy, strong balance sheet and robust power demand, the brokeragwe initiated coverage on the company.

The brokerage estimates 8.5 per cent/13 per cent sales volume/ EBITDA CAGRs over FY24-26, considering the company's focus on volume ramp-up as well as cost savings.

However, the key risks to the company's estimates are pressure from international bodies regarding ESG, impact from commercial mining.