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Business News/ Markets / Stock Markets/  Coal India vs NTPC: Which PSU stock should you pick for long-term investing?
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Coal India vs NTPC: Which PSU stock should you pick for long-term investing?

The recent surge in Indian PSU stocks, with returns reaching up to 300 percent in less than a year. Amidst this favorable landscape, let's compare Coal India (CIL) and NTPC to discern which PSU stock offers superior long-term investment prospects.

The recent surge in Indian PSU stocks, with returns reaching up to 300 percent in less than a year. Amidst this favorable landscape, let's compare Coal India (CIL) and NTPC to discern which PSU stock offers superior long-term investment prospects.Premium
The recent surge in Indian PSU stocks, with returns reaching up to 300 percent in less than a year. Amidst this favorable landscape, let's compare Coal India (CIL) and NTPC to discern which PSU stock offers superior long-term investment prospects.

The recent surge in Indian PSU stocks, with returns reaching up to 300 percent in less than a year, is fueled by increased government-led infrastructure spending, driving up demand for PSU goods and services. Anticipation of political stability, especially with expectations of a BJP victory in the upcoming elections, has further boosted confidence in pro-business policies, driving optimism among investors.

In the short term, market experts anticipate the possibility of a selective correction for the PSU, particularly contingent upon the Q4 performance. However, given the sustained capex initiatives and intact growth plans, alongside a steady flow of orders and the assurance of a stable government, they foresee the continuation of the rally for PSU stocks following the elections.

Read here: Tata Motors vs M&M: Which auto major should you pick for the long term?

Amidst this favorable landscape, let's compare Coal India (CIL) and NTPC to discern which PSU stock offers superior long-term investment prospects.

Stock Price Trend

Coal India as well as NTPC have underperformed benchmark Nifty PSE this year so far but CIL is the better performer between the two. CIL has risen over 20 percent in 2024 YTD while NTPC is up over 15 percent. In comparison, the Nifty PSE index has gained over 22 percent in this period.

This year so far, CIL has given positive returns in 3 of the 4 months so far while M&M has been positive for all 4. CIL rose 4.4 percent in April so far after a 0.6 percent decline in March. Meanwhile, it added 7.5 percent and 8 percent in February and January 2024. Before the fall in March 2024, the stock had given positive returns for 7 straight months since August 2023. Between August 2023 and February 2024, the stock surged over 90 percent.

NTPC, on the other hand, has gained 7 percent in April so far, extending gains for the 6th straight month since November 2023. Between November 2023 and April till date, the stock has jumped over 52 percent. In 2024, it advanced 2 percent in January, 5.6 percent in February and just 0.06 percent in March.

Read here: Nifty Bank vs Nifty IT: Which index should you invest in for long term?

Meanwhile, in the last 1 year, NTPC has been the better stock, giving multibagger returns. It has soared 111 percent whereas CIL has rallied over 95 percent. In comparison, Nifty PSE has surged 110 percent in this time.

Both CIL Motors and NTPC have also hit their record highs in the current year, 2024. CIL hit its new peak of 487.60 on February 16, 2024. Currently trading at 453.20, it is 7 percent away from its peak. However, it has advanced 103 percent from its 52-week low of 223.25, hit on June 26, 2023.

Meanwhile, NTPC touched it's all-time high of 374.50 this month on April 12, 2024, and is currently just 4 percent away from the peak. Currently trading at 359.25, it has rallied over 115 percent from its 52-week low of 166.80, hit on April 19, 2023.

Moreover, in the long term, 3 years, again CIL has emerged as the winner. Both stocks have given multibagger with CIL skyrocketing over 254 percent and NTPC jumping over 250 percent.

Read here: SBI vs Bank of Baroda: Which PSU bank stock should you pick for long term?

Earnings

In the quarter ended December 2023, CIL reported a 17.81 percent year-on-year growth in its consolidated net profit at 9,093.69 crore, registering a higher-than-expected profit. The coal behemoth had posted a net profit of 7,719.11 crore for the third quarter last fiscal. Coal India, in a release, said its net profit during the third quarter this fiscal was the “highest PAT earning" during the third quarter of any year since the company’s listing.

The company’s revenue during the period under review grew 2.79 percent YoY at 36,153.97 crore, against 35,169.33 crore in the third quarter of last fiscal, buoyed by higher coal sales. Further, the board declared a second interim dividend of 5.25 per share for the financial year 2023-24 in Q3FY24.

On the other hand, in Q3FY24, NTPC reported a 7 percent increase in consolidated net profit at 5,209 crore versus 4,854 crore in the year-ago period. However, the firm's consolidated revenue from operations fell 4 percent to 42,820 crore in Q3FY24 as against 44,602 crore in Q3FY23. The board also declared its second interim dividend of 2.25 per share for the financial year 2023-24 in the quarter under review.

Read here: Godrej Properties vs DLF: Which realty stock should you pick for long term?

Which PSU major has better long-term investment opportunities?

Sanjay Moorjani, Research Analyst, SAMCO Securities likes NTPC better.

The increasing demand for power in India, coupled with a growing peak power deficit and the government's emphasis on energy security, is expected to stimulate a resurgence in thermal power capital expenditure (capex). NTPC, with its established reputation and expertise in the thermal power segment, is poised to emerge as a key beneficiary of this renewed focus on thermal power capex.

In line with the prevailing conditions, NTPC has outlined ambitious plans to augment its thermal power capacities. These plans include the addition of 16.8 GW of new thermal power capacities over the next three years, in addition to the 10 GW of under-construction thermal capacities.

Aditya Welekar, Senior Research Analyst - Auto & Metals, Axis Securities also prefers NTPC over Coal India.

We like both Coal India and NTPC as a play on the long-term story of power demand in India. However, we prefer NTPC over Coal India for the long term. The power ministry aims to add 80 GW of thermal capacity by FY32 to meet the nation's power requirements. The peak power demand is expected to reach 366 GW by 2032, up from 240 GW in 2023. NTPC and Coal India will be the beneficiaries of the country's growing power requirement. NTPC also has an ambitious target of 60 GW of renewable capacity (RE) by FY32 from the current 3.364 GW. Coal India also has higher production volume targets of 838 MT and 1 BT, respectively.

Read here: ITC vs HUL: Which FMCG stock should you pick for long term?

Vinit Bolinjkar, Head of Research, Ventura Securities, as well, favours NTPC over Coal India

NTPC is a diversified business with capacities across thermal, gas, hydro, and RE segments and owns the title of largest power generation company in India. Coal India is a pure-play coal mining company catering to majorly the thermal sector and steel industry. In the context of India’s power aspirations and demand outlook, NTPC has plans to expand its RE segment to 60 GW by FY32. Though in the short term, thermal energy is expected to cater to the major power demand and lead to higher coal consumption, on the longer horizon with the advent of storage systems, the RE segment is expected to be the cheaper and cleaner energy choice.

Further coal faces competition from imports and various other regulations on pricing. On financial fronts, both the companies have operating margins of around 27-30 percent. NTPC trades at an EV/EBITDA of 10.4 compared to Coal India trading at 5.4. However, the ramp-up of coal production by the government over the past one year has worked in favour of Coal India which is expected to normalize in the longer term. With the addition of RE capacities, the margins for NTPC are expected to improve, justifying the higher valuations.

Read here: Nifty FMCG vs Nifty Finance: Which sector is better for long-term investment?

Anirudh Garg, Partner and Fund Manager at Invasset believes both PSU stocks are prominent contenders for long-term investment.

CIL, being a dominant player in coal production, stands to gain from cyclical booms and displays an attractive financial picture with its low Price to Earnings (P/E) ratio and substantial dividend yield. Its remarkable 56 percent Return on Equity (ROE) signifies a robust profitability and management efficiency, underscored by its significant increase in the operating profit margin in the recent year.

NTPC, conversely, holds the flag as India's largest power utility, with its fortunes interwoven with the burgeoning energy requirements of the nation and its foray into renewable energy initiatives. Despite a higher valuation indicated by its P/E ratio, NTPC's consistent sales growth and ROE suggest a steadier, albeit less profitable, trajectory compared to CIL.

NTPC may face challenges in the thermal power sector but could reap the rewards of a shift towards renewable energy. Meanwhile, CIL's prospects are buoyant with short to medium-term demands in infrastructure and defense, although long-term sustainability is clouded by the global transition to greener energy sources.

Read here: Nifty Auto vs Nifty Realty: Which sector is a better bet for long term?

For a long-term investor, the choice between CIL and NTPC balances on the scales of current valuation attractiveness and prospective sectoral growth. The high dividend yield and favorable valuation metrics of CIL present immediate allure, especially with the current emphasis on infrastructure. On the other hand, NTPC's potential for adaptation to the evolving energy paradigm may hold the key to enduring growth.

In conclusion, analysts agree that NTPC presents better long-term investment opportunities compared to Coal India, with its strategic focus on renewable energy and potential for sustained growth in India's evolving energy sector.

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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Published: 18 Apr 2024, 11:16 AM IST
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