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Coal India shares down 14% from 52-week high; Nuvama sees stock at Rs 361, dividend yield at 9%

Coal India shares down 14% from 52-week high; Nuvama sees stock at Rs 361, dividend yield at 9%

Coal India: While investors focus on e-auction prices to determine Coal India's profitability, Nuvama highlighted that a few charges levied by Coal India, along with washed coal and other services, contribute meaningfully to its profits too.

Amit Mudgill
Amit Mudgill
  • Updated Jun 21, 2023 7:57 AM IST
Coal India shares down 14% from 52-week high; Nuvama sees stock at Rs 361, dividend yield at 9%Coal India: Downside to e-auction prices is limited as Coal India's prices are still at a discount to global prices, Nuvama said.

Shares of Coal India are down 14 per cent from 52-week high level of Rs 263.30 hit in November last year, thanks to concerns over the government's recent equity dilution and a steep fall in prices of e-auction. Nuvama Institutional Equities, however, believes the downside to e-auction prices is limited as Coal India's  prices are still at a discount to global prices.

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"During FY18–22, CIL recorded average Ebitda of Rs 25,100 crore. In light of increasing volume, partial FSA price hike and cost peaking out, we believe Coal India would continue to generate much above-average Ebitda in the foreseeable future," the brokerage said. It believes that Coal India Besides, Coal India should continue to pay out dividend per share of at least Rs 20 each in FY24E and FY25, Nuvama said, implying a handsome dividend yield of 9 per cent.

The domestic brokerage said negatives such as employee cost increase and offer for sale by the government are behind is and that the risk-reward is favourable for the stock.

While investors always focus on e-auction prices to determine Coal India's profitability, Nuvama highlighted that a few charges (evacuation charges, surface transportation charges, forest transit fee, etc) levied by Coal India along with washed coal and other services contribute meaningfully to its profits too.

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"Our calculation suggests that ‘others’’ constitutes 37 per cent of FY23 Ebitda (FY18–23 Ebitda CAGR of 19 per cent) and its contribution should increase to 45 per cent in FY25E as profits from e-auctions fall," Nuvama said.

The average e-auction premium dipped to 55 per cent over FSA price in mid-June from 137 per cent in April. It sees average e-auction premium in June quarter at 103 per cent.

"We expect the premium to stabilise during the monsoon before moving up in H2FY24. We believe thermal power generation to increase by 4–5 per cent YoY in the months ensuing monsoon, which shall lead Coal India to increase supply to the power sector and in turn help in firming up e-auction prices. We are reducing average e-auction coal price to Rs 2,700 per tonne (earlier Rs 3,000 per tonne) for FY24E, and maintain it at Rs 2,035 per tonne for FY25E. A change of Rs 100 per tonne  in e-auction coal price leads to a change of 2 per cent in FY24E Ebitda," it said.

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Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Published on: Jun 21, 2023 7:57 AM IST
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