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Business News/ Markets / Stock Markets/  Coal India share price down 4%: Should you Buy, Sell or Hold the stock?

Coal India share price down 4%: Should you Buy, Sell or Hold the stock?

Stock Market Today: Coal India share price declined more than 4% in intraday trades on Tuesday. The company has adjusted its volume guidance, which, analysts say is in line with their earlier estimates. Further rising volumes will compensate for the decline in e-auction premiums

Coal India share price declined more than 4% during intraday trades on Tuesday. (Mint)Premium
Coal India share price declined more than 4% during intraday trades on Tuesday. (Mint)

Coal India share price corrected more than 4.0% in the intraday trades on Tuesday. The Coal India stock that has scaled 52-week highs of 487.75 on 16th February after having more than doubled from 52 week lows of 207.75 on MArch'2023, has given up some parts of the gains.

The volume outlook for Coal India remains strong as was highlighted by the management during  the recent investor presentation on 19th February.

Highest ever 9M Coal production of 531.90 MT and Over burden removal of 1404.85 MCuM was achieved during 9M of FY 23-24 marking a growth of 11 % and 22 % respectively.  The strong power demand in the country has lifted col Demand and in turn of Coal India's produce. 

During April-Dec of FY 2023-24, Coal India supplied 552.03 MT of coal against 507.8 MT of coal supplied during the same period last year thereby registering a growth of 8.7%. Supplies to power sector also increase by 4.9% y--y. during the same period.

As the volume growth run rate stay strong Coal India forward guidance for volumes was slightly lower than earlier guidance, which analysts said that was already high. 

Guided volume run-rate still inline of higher that analysts estimates

Analysts at Nuvama Institutional Equities said that Coal India lowered the volume guidance for FY24 and 25 to 770 million tonne (MT) and 838 million tonne compared to 780mt and 850mt guided earlier (which anyway was very high). The calibrated volume guidance is due to lower volume from SECL (subsidiary), which, in turn, was due to land shortage (hit volume by 8–10mt), added analyst. However, Nuvama analysts say that they had already factored in volume of 752mt and 790mt for FY24 and FY25 (estimates) and, hence, do not expect any risk to their volume and earnings estimates.

Analysts at Motilal Oswal Financial Services said that based on the year to date performance, Coal India is confident of achieving 770mt of production during FY24, with five subsidiaries on track to achieve 100% of the annual production target. The number is lower than earlier guidance as its subsidiary  (SECL) would fall short by 8-9 million tonne due to some pending clearance for mine.\

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Analysts at Jefferies India Pvt Ltd also said that Coal India has slightly cut its FY24 volume guidance from 780 MT  to 770mt (Jefferies estimate: 770mt production). For FY25, the company has reduced its volume target from 850 mt to 838 mt, although still higher than Jefferies of 812mt. 

Higher volumes to drive e-auction volumes even though e-auction premiums soften

Coal India supplies majority of its produce to power sector through Fuel Supply agreements (FSA). The coal produced  after meeting FSA demand is sold through e-auctions where Coal India also derives higher realizations s the realisations for fuel being supplied through FSAs is as per agreements.

As Volume guidance still is in line with analyst estimates, the rise on more profitable e-auction volumes to accrue positives to earnings.

Rising coal production will also mean higher e-auction sales. The  e-auction premiums, though have softened recently, nevertheless rising e-auction volumes compensate for the decline and earnings outlook remains strong. 

Also Read- Reliance Industries: 8 Key reasons why Jefferies has raised earnings estimates and sees more upside for the stock price

Analysts at Jefferies though have cut FY24-26 estimated earnings per shre (EPS) by 2-6% on lower e-auction premiums, but higher e-auction volumes and slightly lower staff cost. Col India as per Jefferies has delivered a strong FY23 with EPS rising 63% year-on-year to Rs46 (FY10-22 peak was Rs28), led by strong volume growth and a sharp rise in e-auction prices. While e-auction prices have eased, improved volume growth and lower-than-expected costs have enhanced earnings outlook. They expect Coal India's EPS to reach all-time high of Rs51 in FY24, and add that despite the 47% rise in shareholders returns and 33% outperformance to Nifty-50 since November, Coal India still is at an inexpensive 9.2x FY25 estimated price to earning versus 2011-18 average of 13 times. They retain Buy with a revised price target of Rs520 based on 10x FY26 estimated price to earnings ratio, which provides 18% share holders returns including 5% dividend yield.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions







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Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 20 Feb 2024, 01:02 PM IST
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