This Maharatna Stock Leading To 8% Dividend Yield, Expects Higher Incentive Income By Rs. 10-20bn

Leading brokerage firm ICICI Securities has given a buy rating to the stock of Coal India. Better government support on fast tracking EC, FC approvals and land availability, along with increased investment in improving mining infrastructure, which has improved operations are key reasons behind its strong volume growth.

Stock Valuation: Coal India

According to ICICI Securities, "We maintain our BUY rating and our DCF-based target price of Rs. 294 on the stock. CIL is currently trading at 6.3x P/E and 2.8x EV/EBITDA on FY24E basis with 35.4% RoE. We expect dividend payout to remain high, leading to 8-10% yield at current market price, despite heavy capex." Additionally, CIL expects to take a price hike along with wage hikes, the negotiations of which are expected to complete by FY23-end.

Strong & achievable production target

Coal India expects to achieve the 700mnte production target for FY23. For FY24, while the mandate from the Ministry of Coal is 840mnte, it may be difficult to achieve and the realistic target may be 780mnte. Company also expects to clock higher volumes during Q3FY23 compared to the original plan, which if achieved, will require much lower run rate in Q4FY23 to achieve the FY23 production target.

Stock To Buy: Target Price

The Current Market Price (CMP) of Coal India (CIL) is around Rs. 244.85. ICICI Securities has estimated a Target Price for the stock at Rs. 294. This stock has the potential to give a 20.49% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 150,925 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 244.85
Target Price	Rs. 294
Potential Upside	20.49%
52-week high share price	Rs. 247.80
52-week low share price	Rs. 139.15

Improving Capex

CIL expects capex of Rs. 180-185bn for FY24 (Rs. 165bn for FY23), mostly aimed towards increasing production and JV related capex. Company's first mile connectivity (FMC) projects are expected to reduce transportation costs by Rs10-20/te but it is more important from the perspective of sustainable operations (reducing dust during coal transportation).

E-auction volumes to increase

Coal India expects e-auction prices to average Rs. 5,000/te on blended basis for FY23. Among subsidiaries, ECL and BCCL may clock higher average e-auction realisations, while the same for MCL may be lower. 20mnte was sold under e-auctions during Q1FY23 of which, 10mnte was under old pricing due to which average realisation was lower. Company believes that e-auction volumes will increase from Q3FY23 onwards. Given the higher sales to power sector, CIL expects to book higher incentive income by Rs. 10-20bn.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.