Coal India posts better-than-estimated numbers for Q1 FY24; analysts see up to 30% upside in stock

Coal India Q1 Results: Coal India (CIL) posted a better-than-estimated set of numbers for the quarter ended June 30, 2023. The coal major reported a 10.1 per cent fall in its consolidated net profit to Rs 7,941.40 crore for the first quarter of the current fiscal, dragged by higher expenses. The figure was better than Zee Business analysts' estimates, as the research desk had pegged the central public sector undertaking's (CPSU) net profit at Rs 6,412 crore, down 27 per cent year-on-year (YoY). It had posted a net profit of Rs 8,833 crore in the year-ago period.

Coal India said its provisions for wage hikes rose to Rs 800 crore from Rs 324 crore a year ago, cutting into its profit margin.

Its revenue grew by 2.5 per cent to Rs 35,983 crore as coal prices normalised during the quarter.

The Kolkata-based company said it saw lower realisation per tonne of coal at Rs 3,740.84 in the auction segment in the first quarter, down 13.8 per cent from a year ago.

The stock of the company traded nearly 1.50 per cent higher at Rs 233.60 on the BSE in the opening deals on Wednesday.

Motilal Oswal Securities, in its results review note, said that the government’s commitment to providing a 24x7 power supply to all homes augurs well for Coal India to achieve strong coal production in the next few years. The brokerage also noted that Coal India achieved one of the highest dispatches to the non-power sector at 33.4 mt (up 34 per cent YoY).

"We believe the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term. Further, China has also increased its dependence on thermal power and has commissioned nearly two thermal power plants each week in CY22 and has added more plants in 1HCY23 as well," the brokerage said in its report dated August 8.

It further added that, with 14 countries adding new coal plants in the last year and eight countries announcing new projects, the dependence on coal is therefore likely to increase in the near term.

"Coal India remains our top pick in the mining sector. The stock is trading at an inexpensive valuation of 3.1x on FY25E EV/EBITDA," it added. The brokerage has maintained a 'BUY' rating on the stock with a target price of Rs 300, valuing the stock at 4.5x FY25E EV/EBITDA.

Sudhanshu Bansal and Darshan Gangar, research analysts with JM Financial, note that going forward, the momentum in monthly production and the trajectory of global coal prices remain key monitorables for the company.

"The stock has corrected in recent months (post OFS); however, the company continues to show improvement in production and better-than-expected realisation in e-auction prices, leading us to upgrade our rating from HOLD to BUY while maintaining our SOTP-based TP of Rs 255," they said.

The brokerage further noted that the government has encouraged the use of mine developer operators (MDOs) in the coal industry to improve efficiency and productivity. Of the 15 MDO projects (11 open cast mines and 4 underground mines) with a combined targeted capacity of 170 MT, work orders were issued for nine projects with 127 MTPA capacity during FY23. Three of the nine projects have already begun mining operations, and of the remaining six, bids are under evaluation for two projects, while for four projects, the tendering process is on. 24 coal mining projects with a total capacity of 140.3 MTPA were approved in FY23; the total sanctioned capital for these projects is Rs 22,100 crore.

These, as per analysts, augur well for the company.