Coal India share price rises 5%. Here’s why experts see an additional 20% increase

As previously reported by the Mint, Coal India on Friday reported a 13.2 percent year-on-year increase in its coal production last month to 52.3 million tonnes (MT) of coal in August. In August 2022, the important public sector produced 46.2 MT.

So far in the current financial year (FY24), Coal India has produced 281.5 MT of the ore, recording 11 percent growth compared to the same period of the previous fiscal year, according to a company statement.

Read more: India’s coal output rose 13.2% in August amid rising power demand

The stock has underperformed the benchmark Sensex index over the past year. While Sensex has gained more than 10 percent in the past year, Coal India’s share price has gained around 7 percent in the same period.

Coal India share price hit its 52-week high $263.30 of November 9, 2022 on EEB. At the close of the previous session, the stock was down 10 percent from its 52-week high.

Experts and brokerage firms believe that stocks can rise from current levels as indicated by the stock’s fundamental and technical factors.

brokerage firm ICICI Values holds a call option on the shares of Coal India, setting the target price of $285, implying 20 percent upside potential.

The brokerage firm noted that Coal India’s August 2023 operating figures were strong.

“(1) production/sales volume continued at an all-time high for the fifth consecutive month in FY24; (2) the revival of SECL volume has offset flat MCL volumes; (3) the low of Traditional volume in Q2 is much lower in FY24 due to increased flea market availability; (4) higher volume for the non-regulated sector (NRS) is likely, up 61 percent year-over-year (YoY) in August 2023, hold FSA prices; and (5) minehead inventory at 45.3 million remains a comfortable level due to increased production,” ICICI Securities said.

The brokerage firm believes that Coal India is likely to benefit from operating leverage benefits resulting from higher sales volume for both NRS and eAuction clients, despite a much lower eAuction premium than in fiscal year 23.

He said Coal India’s earnings are more sensitive to volumes and year-to-date performance in August 2023 indicates an increase in volume for NRS and regulated customers, giving the company double operating leverage benefit and higher FSA prices.

Furthermore, ICICI Securities added that the recent rally in international coal prices bodes well for electronic auction prices in the future. Increased volume at SECL (the largest affiliate) and BCCL (the highest performing affiliate) is positive to keep earnings momentum intact.

On the technical front, the brokerage firm Relink Brokerage noted that Coal India has been trading in a consolidating range, i.e. $230-235 over the last ten months, after a strong directional move.

“The stock attempted a breakout in June 2023 but failed and pulled back to the medium-term moving average support zone, i.e. 100 EMA (exponential moving average). It formed a base higher in the last three months and it is currently trading on the brink of a breakout again.

Religare Broking has a call option on the share with a target price of $260.

Coal India posted a net year-on-year decline of 10 percent in the first quarter of FY24 revenue in $7,941 crores of $Rs 8,834 crore reported during the corresponding quarter of last year. The company’s net sales grew marginally at $33,072.6 crores during the quarter under review $32,497.9 during Q1FY23.

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Disclaimer: The opinions and recommendations above are those of individual analysts and brokerage firms, not those of the Mint. We advise investors to consult with certified experts before making any investment decision.

Updated: Sep 4, 2023 11:41am IST