Coal India - Robust Demand To Drive Volumes; E-Auction Premium Softens Amid High Supply: Motilal Oswal

Motilal Oswal Report

In a recent investor interaction, Coal India Ltd. management highlighted the following points:

1. Coal India would achieve production of 770 million tonne in FY24 and 838 mt by FY25;

2. e-auction premiums have softened in Q4 FY24 to 35- 50%, but volumes via the e-auction route have improved (15% versus 8-9% in 9M FY24); and

3. the company is committed to supplying at least 610 mt to the power sector in FY24 and increasing the dispatch by 50 mt p.a. going forward.

Based on the year-to-date performance, Coal India is confident of achieving 770 mt of production during FY24, with five subsidiaries on track to achieve 100% of the annual production target. The number is lower than earlier guidance as SECL subsidiary would fall short by 8-9 mt due to some pending clearance for mine.

Though e-auction premiums have declined in January-February-24 to 35-50% from 117% in Q3 FY24, the increase in e-auction volumes (~15% of the quarterly dispatches versus 8-9%) would largely offset the impact.

Domestic power generation is expected to grow by 7.7% to 1,750 billion unit in FY24, which will drive coal demand. Dispatches to coal-fired plants till Jan-24 stood at 509 mt (up 7.3 mt YoY) and are expected to cross 610 mt in FY24E.

In line with the recent trend in e-auction premiums, we have trimmed our e-auction premium for FY26E while increasing e-auction volumes. As a result, we have increased FY26E revenue/Ebitda/adjusted profit after tax by 1%/9%/7%.

Coal India trades at enterprise value/Ebitda of 4.9 times FY26E. We reiterate our 'Buy' rating on the stock with a revised target price of Rs 520 (5.5 times EV/Ebitda).

We believe Coal India is well placed to capitalize on the growth opportunity ahead.

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