Target: ₹500
CMP: ₹446.55
We attended Coal India’s (CIL) Q3-FY24 conference call on February 19. Takeaways: FY24 volume likely to be 780 mt; e-auction premium has come off, but volume has improved; Q4FY24 e-auction volume likely to be 15 per cent of overall sales; FY25 production volume likely at 838 mt owing to record stock at power plants; and capex likely to pick-up progressively.
We believe CIL’s performance is likely to be driven by volume growth. That said, street will watch out for e-auction premium, which is down to 36-48 per cent thus far in Q4FY24. In our view, the higher e-auction volume is likely to completely offset the adverse impact of lower premium. However, any upside might be constrained if e-auction premium continues to stay low. Taking cognisance of management’s commentary, we lower our EPS by 3/1 per cent for FY25/26, respectively.
The board has also approved a second interim dividend of ₹5.25 per share, total dividend of ₹20.5 per share for FY24 thus far.
Our revised TP works out to ₹500 (earlier: ₹505) on an unchanged 8.5x FY26E EPS and downgrade the stock to Add (from Buy).
Key risks are higher-than-expected decline in e-auction price/volume, Lower-than-expected volume uptick and subdued demand from power sector.