Coal India stock looks attractive to Jefferies with 27% upside potential

Coal India’s recent volume growth trajectory has seen an improvement, and is better suited to feed India’s rising power demand, per Jefferies.

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The recent slump in Coal India shares throws up a good opportunity for investors to buy into the state-run miner, Jefferies said in a note.

The international brokerage maintained its ‘buy’ call on Coal India, with a target price of Rs 530 per share. From the closing price of Rs 416.9 on the BSE, this implies an upside of 27 percent.

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The 13 percent decline from its peak has made Coal India shares attractive to the broker. Jefferies noted that the coal miner’s stock was trading at a steep 57 percent discount to the Nifty 50 PE. From 2011 to 2018, Coal India usually traded at an average discount of around 16 percent.

Coal India’s recent volume growth trajectory has seen an improvement, and is better suited to feed India’s rising power demand. The fall in e-auction prices too seems largely behind.

The stock is trading at an 8.3x FY25 PE compared to 13x during 2011 to 2018.

On February 19, the Coal India management told analysts that its e-auction premiums had dropped to 48-50 percent in January 2024 and 38 percent in February 2024. On the other hand, volumes had increased 17 percent and stood at 13 percent of sales.

Coal India set a target to produce 838 million tonnes (MT) of coal in the financial year 2024-25, of which 661 MT will be supplied to the power sector alone, the state-owned company’s chairman and managing director (CMD) PM Prasad said.

“Earlier, the target for Coal India was 850 MT. But currently, there are huge coal stocks at thermal power plants (TPPs) because of which the ministry has revised our production target to 838 MT for FY25. That said, if the power demand increases substantially, Coal India will still be in a good position to produce more than the said target,” added Prasad.

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