Phillip Capital initiates Buy call on Coal India amid rising capex and robust growth prospects, sees 23% upside

The scheme is benchmarked against Nifty India Defence - TRI, which provided a return of 146.17% in the last nine months. Over the past three and six months, the scheme delivered returns of 60.66% and 87.04%, respectively. In the last one year, the scheme has achieved a return of 187.42%.

Citing rising thermal power capex and robust growth prospects, brokerage firm initiated coverage on with a 'Buy' rating and target price of Rs 611, which indicates an upside potential of 23% from the previous day's closing price of Rs 498 apiece.

The brokerage firm emphasized that Coal India is set to remain a cornerstone in meeting India's growing energy demands. With the revival of thermal power capex, Coal India is expected to experience substantial volume growth, enhancing its financial stability and dividend yields.

Phillip Capital estimates Coal India's volume growth at a compound annual growth rate (CAGR) of 8% over FY24-27. This growth is supported by increasing demand for thermal coal, the addition of power plants, and a shift away from imported coal. This projected growth will significantly bolster Coal India's earnings and strengthen its market position.

Coal India has successfully increased its EBITDA per tonne (EBITDA/t) in recent years, reaching Rs 555 in FY24 from Rs 377 in FY20. While EBITDA/t is expected to moderate to around Rs 500, it will remain significantly higher than pre-COVID levels. This profitability is underpinned by robust volume growth and favorable pricing in e-auctions, the brokerage firm said in a report.

In FY24, Coal India achieved its highest-ever capex at Rs 198 billion and paid Rs 154 billion in dividends, ending the year with a strong cash balance of Rs 272 billion. Phillip Capital expects an 8% volume CAGR for the next three years, with FY25 capex projected at around Rs 200 billion, which will still be lower than annual cash generation.

India's thermal power capex is experiencing a resurgence, with coal remaining the primary energy source. The government's plans to install 88GW of thermal capacities over the next 6-7 years will significantly increase coal demand.

Coal India, fulfilling around 79% of India's coal production needs, will be instrumental in meeting this demand, supporting its volume growth and profitability for the foreseeable future, the brokerage stated in the report.

In Tuesday's trade, the stock surged nearly 4% to hit the day's high at Rs 518.3 on BSE. On a year-to-date, the stock has surged 35%, while it has rallied 122% in the past year.

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Source: Stocks-Markets-Economic Times