Coal India shares: All-time high dividend likely in pre-election year, says Nuvama

Nuvama Institutional Equities has upped its share price target on Coal India Ltd shares, saying the pure domestic play offers three benefits of e-auction prices, volume growth and possibly all-time high dividend in FY24.

It has revised its FY24 Ebitda estimate by 9 per cent and FY25's by 8 per cent to factor in higher e-auction price and volume. "This along with a rollover and valuation of 4.5 times FY25/FY26 average yields an increased fair value of Rs 389 (earlier Rs 361), excluding DPS of Rs 30/25 in FY24/FY25," the domestic brokerage said.

E-auction premium

Nuvama said with monsoon preceding and hydro and wind generation falling, demand for thermal power is set to rise further in the second half of the financial year. The rise in global coal prices coupled with an uptick in industrial activity pushed up the e-auction premium to 106 per cent in September from 54 per cent in June, it noted.

"With increasing coal demand from thermal power plants, there is a possibility of diversion of coal from non-power to power in H2FY24, which should lead to firm e-auction prices. We are revising upwards FY24 average e-auction price by 11 per cent to Rs 3,000 per tonne and FY25 price by 10.5 per cent to Rs 2,248 per tonne," it said.

All-time high dividend

The domestic brokerage has raised its dividend per share (DPS) estimates from Rs 20 to Rs 30 for FY24 and Rs 25 for FY25. It said FY24 DPS of Rs 30 could be interim and should be paid out in H2FY24 (annualised dividend yield of 21 per cent).

"This is quite possible in a pre-election year as Coal India is likely to generate free cash flow of Rs 22,000 crore/Rs 19,500 crore in FY24E/FY25E," Nuvama said.

Nuvama said Coal India recorded an average Ebitda of Rs 25,100 crore during FY18–22 against its FY24E Ebitda of Rs 40,880 crore.

"With higher volume, partial FSA price hike (on 30 per cent of volume) and cost peaking out, we believe Coal India would continue to generate Ebitda much above average in the foreseeable future. Despite the stock rallying 25 per cent since September, we expect further upside potential of 35 per cent within a year, excluding the dividend of Rs 30 in H2FY24E and Rs 25 in FY25E," it said.

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