Coal India share price scales 52-week high on improved volumes and blended realization outlook

India stock market: Coal India share price (CIL) has gained more than 36% since end August and has scaled fresh 52-week high on Tuesday. The company remains in the spotlight on rising production and supplies while higher international coal prices also mean that the company’s realisations open market supplies to non-power sector will also improve. High dividend yield remains another key factor for higher investor interest in Coal India.

Coal India on Monday post market hours had announced that its supplies to thermal power plants of the country shot up close to 6% to 23.5 million tonnes (mt) during the first fortnight of October 2023 ahead of the festive season. Comparatively the supplies were 22.2 MTs in the same period of October 2022.

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The strong power demand is leading to higher demand from the power sector. The Coal India’s first half FY24 production at 333 MT already had risen 11.3% year-on-year while total supplies at 360.7 mt during first half, were up 8.6% y-o-y growth. The analysts say Coal India's growth is commendable looking at the high base.

While the September quarter still remains a seasonally weak quarter, where demand supplies get impacted by rainfall, the supplies are picking up pace in October.

Coal India's volume target for FY24 stands at 780 mt, while it plans to achieve 840 mt and 1,000 mt during FY25 and FY26 respectively.

The power sector demand will remain strong for thermal coal as contribution from hydropower and renewable also start declining post Q2.

As strong power sector demand lifts Coal India's volume prospects, with rising production higher supplies to non power sectros will further accrue positives. The supplies made to the power sector are under a fuel supply agreement while to others in open market are through e-auctions. The strong coal demand in the country and rising international coal prices will lead to better e-auction premiums.

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Analysts expect international coal prices to remain high. As per HSBC Global Research, the thermal coal is heading into seasonal tightness. They expect higher price strength until first quarter 2024 on seasonal demand, sanctions on Russian supplies that remain supportive for Australian prices.

The rise in global coal prices coupled with an uptick in industrial activity already had pushed up Coal India's auction premium to 106% in September 2023 from 54% in June 2023, as per analysts

The higher volumes and blended realizations will support earnings for Coal India. Analysts at Nuvama Institutional Equities have revised upwards their FY24 and FY25 estimated Ebitda by 9% and 8% respectively to factor in higher e-auction price and volumes. Ebitda stands for earnings before interest tax depreciation and amortisation.

The high dividend yield expectations are further driving Coal India share prices. Nuvama has already raised dividend per share estimates from ₹20 to ₹30 for FY24 and ₹25 for FY25. They highlight that FY24 estimates dividend per share of ₹30 could be interim and should be paid out during the second half, which translates in to annualised dividend yield of 21%.

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