6% Dividend Yield: Maharatna Company Is Axis Securities’ Pick of The Week; Here’s Why

Founded in 1975, Coal India Limited (CIL) is the world's largest producer of coal. In April 2011, CIL was granted Maharatna status by the Government of India (GOI), which gave it financial and operational independence. 322 mines, including 138 underground, 171 opencast, and 13 mixed mines, were operated by CIL as of March 2023. A Maharatna corporation, Coal India is one of Dalal Street's stocks with a high dividend yield. Let's see why Axis Securities has recommended buying Coal India as its top pick of the week, with a target price of Rs 430.

Coal India Investment Rationale

As per a report of Axis Securities dated 27th January, here is the investment rationale for investors considering buying the shares of Coal India.

Delivering robust production and off-take: CIL production in FYTD till Dec'23 stood at 532 MT, up 11% YoY. CIL needs another 11% YoY growth in Q4FY24 to achieve its target of 780 MT production for FY24. Coal offtake for 9MFY24 stood at 552 MT, up 9% YoY, and it will require a steeper 22% increase in Q4FY24 to reach the 780 MT offtake target for FY24. We model coal offtake at 760 MT, which implies a run rate of 9% growth YoY. CIL has ambitious coal supply targets of 850/1,000 MT for each year over FY25-26E.

E-auction premium stabilizing: With the drop in international coal prices, the e-auction premium had fallen to 54% in Jun'23, rebounding to 118% in Oct'23, and standing at 83% in Nov'23 and 62% in Dec'23. FYTD'24 e-auction premium has stood at ~86%. We model e-auction volumes of 76/82/91 MT over FY24-26E, which is approximately 10% of our offtake volume estimates of 760/820/881 MT over FY24-26E.

Coal-based Power demand offers demand visibility: As per the National Electricity Plan (NEP) for 2022-32, the domestic coal requirement is estimated at 866 MT for FY27 and 1,026 MT for FY32. The coal requirement has been calculated assuming a 20% reduction in Hydro, Nuclear, and Variable Renewable Energy (VRE) generation due to uncertainty. The increasing usage of thermal power provides demand visibility for coal in the future.

Coal India Share Price Target

CIL has demonstrated a good production run rate so far. It is implementing several measures to support its production targets, including i) using the MDO model (Mine Developer Operators) for greenfield and brownfield mines, ii) implementing FMC (First Mile connectivity) projects for evacuation efficiency, and iii) employing the latest technology for faster evacuation and transport, along with a focus on exploration. We value the stock at 4.5x 1-year forward EV/EBITDA multiple on FY26E Adj. EBITDA (Rollover from FY25E) and arrive at our target price of Rs 430/share (from Rs 380/share), implying an upside of 10% from the CMP, said the equity research analysts of Axis Securities.

Coal India Dividend Yield

Coal India has announced an equity dividend of 242.50% at a face value of Rs 10 for the year ending in March 2023, or Rs 24.25 per share. This generates a dividend yield of 6.02% at the current share price of Rs 402.80.

For the past five years, the firm has regularly distributed dividends and has a strong dividend track record. According to Trendlyne's statistics, Coal India Ltd. has issued 25 dividends totalling Rs 239 since February 18, 2011, representing a dividend yield of 61.31%.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.