The brokerage firm Motilal Oswal has reiterated its ‘Buy’ rating on Coal India. The company is one of the major players in the Indian mining sector. The firm has also set a target price of Rs 480, highlighting a potential upside of 28% from the current market price of Rs 376.
According to the brokerage, the company’s strong quarterly results, the favorable e-auction performance, and the growth initiatives are key factors primarily driven for this rating.
3 reasons why Motilal Oswal has ‘Buy’ rating on Coal India
Let’s take a look at the three key reasons why the brokerage firm has reiterated its ‘BUY’ rating on Coal India:
1. Strong quarterly performance with higher e-auction premiums
According to the brokerage firm report, Coal India’s performance in Q3FY25 was steady, driven by strong volumes and higher e-auction premiums.
The company reported a revenue of Rs 358 billion, a slight dip of 1% YoY but a healthy 17% growth QoQ. Moreover, this was in line with the brokerage firm estimates.
The company’s e-auction revenue surged by 38% sequentially to Rs 51 billion. The realised price of Rs 2,671 per tonne represents a 76% premium. “The strong performance in e-auctions has significantly boosted Coal India’s profitability,” added the company in its report.
This higher realisation supports the overall profitability and makes the stock an attractive option for investors.
2. Focus on expansion and diversification
The brokerage firm further highlighted Coal India’s focus on expanding its coal washer capacity, which will boost its market share in both coking and non-coking coal.
“Coal India’s strategic focus on expanding its operations and diversifying into new growth areas makes it well-positioned for future growth,” added Motilal Oswal in its report.
As per the firm, these long-term initiatives ensure that Coal India can maintain a competitive edge in the sector. Moreover, the management is also focusing on coalmine expansions, which are expected to be funded through internal accruals.
Furthermore, the brokerage firm in its report added that for certain strategic diversification projects such as renewable energy facilities and coal gasification, the company might raise funds through borrowings.
3. Steady production and sales growth
Coal India’s production in Q3FY25 surged by 33% QoQ, reaching 202 million tonnes. The sequential jump was driven by a low base in Q2FY25, which was impacted by monsoons.
According to the Motilal Oswal report, “Coal India’s ability to ramp up production even after the challenges posed by weather conditions shows its operational efficiency.” The continued production growth, coupled with stable sales, positions Coal India well for sustained earnings growth in the coming quarters.
Coal India’s Q3FY25 performance
Coal India on Monday (January 27) announced its financial results for the quarter ending December 31, 2024. The company reported a 17% decline in its consolidated net profit for Q3FY25, posting Rs 8,505.57 crore compared to Rs 10,253.48 crore in the same quarter last year.
However, the profit showed a 35% increase from the previous quarter’s Rs 6,289 crore. Revenue from operations slightly dropped by 1%, amounting Rs 35,780 crore, but marked a 16.6% rise from the previous quarter.
The company’s expenses rose by 4% YoY to Rs 26,202 crore and by 8.4% sequentially. EBITDA for the quarter was Rs 12,317.2 crore, a 5% dip from last year.The EBITDA margin also dipped slightly to 34.4% from 35.9%.
Apart from this, the company’s board declared a second interim dividend of Rs 5.60 per share, with the record date set for January 31, 2025, and payment expected by February 26, 2025.
Stock performance: Coal India Vs Nifty 50
After Coal India’s Q3FY25 results, the Coal India share price today opened at Rs 376 and saw a decline during the day, trading at Rs 371.05 by 3:03 PM IST, down by 1.25%.
Compared to its 52-week high of Rs 543.55, the stock is significantly underperforming. It is currently just 0.15% away from its 52-week low of Rs 361.25.
Over the past five days, it has dropped by 1.84%, and its six-month and one-year performance also shows a decline, with the share price of Coal India dropping by 27.63% and 10.21%, respectively.
In comparison to the benchmark index, the Nifty 50, in the last five-days it posted a slight loss of 0.69%, but has gained 5.43% over the past year.
As of now, Coal India’s market capitalisation stands at Rs 2.29 lakh crore.