LIC-Backed PSU: Maharatna Stock Gets Buy Call After FY24 Volume Update; Bet?

The largest coal producer in the world, both domestically and internationally, is Coal India Ltd (CIL). It is a "Maharatna" PSU that functions under the Ministry of Coal's supervision. In FY25, Coal India aims to deliver 838 MT of coal. In light of government plans to provide uninterrupted power to every home in the nation by 2025, Coal India has set a lofty goal to produce 1000 MT of coal by FY26. The firm recently revealed that, for the first two years since its founding, its sales volume for FY24 had grown by double digits. In response, ICICI Direct Research, a brokerage company, launched a buy call on the stock with a target price of Rs 550. Over the course of a year, this implies a potential upside of 23% from the stock's current market price of Rs 448.

Coal India FY24 Volume Update

With a high base of 703.2 million tonnes (MTs) in FY 2023, Coal India Limited (CIL) produced 773.6 MTs of coal in FY 2024, a 10% increase. The output climbed to 70.4 MTs in volume terms, the second-highest level ever. Over the last two fiscal years, CIL has produced 151 MT higher. This was 22.6 MTs more than the 128.4 MTs total increase that was attained during the course of six years, from FY 2016 to FY 2022. March 2024 had 88.6 MTs of coal produced, which was a record for any month. In FY 2024, total coal supply reached 753.5 MT, representing an 8.5% growth. Over 694.7 MTs of FY 2023, the volume growth of 58.8 MT was achieved. With a growth of 5.4%, supplies to the energy sector reached 618.5 MTs in the recently ended fiscal year, 31.9 MTs more than in FY 2023 (586.6 MTs). The power plants received 8.5 MTs more coal from CIL than it was required to supply for the year-610 MTs. At the same time, supply to the non-power sector (NPS) climbed to 135 MT, a year-on-year increase of 26.9 MT, or around 25% growth. With a roughly 30 per cent rise, CIL's coal inventory at the end of FY 2024 was around 90 MT, 20.7 MT higher than at the same time during the previous fiscal year. For FY 2025, CIL's output and off-take are projected to be 838 MTs.

Coal India Q3FY24 Results

"Total operating income for the quarter came in at Rs 36154 crore (up 3% YoY & 10% QoQ) with coal sales volume of 191 million tonne (up 9% YoY and 10% QoQ). Reported EBITDA for the quarter came in at Rs 11,373 crore with corresponding EBITDA margins at 31.5% (up ~200 bps YoY). EBITDA/tonne for Q3FY24 came in at Rs 594/tonne in Q3FY24 vs. Rs 468/tonne in Q2FY24. PAT in Q3FY24 stood at Rs 9094 crore (up 18% YoY and 33% QoQ basis). The company declared an interim dividend of Rs 5.25 per share," said ICICI Direct Research in a note.

Coal India Investment Rationale By ICICI Direct Research

Coal share in India's energy basket remain significant: Coal accounts ~50% of India's energy and ~70% of electricity needs, making it as the primary energy source for the country. Despite increasing focus on renewable/nonfossil fuel-based energy, there is anticipated growth in coal based thermal capacity to meet rising energy needs domestically. Thus, demand for coal is expected to reach ~1.3 to 1.5 billion tonnes by 2030 positioning Coal India a clear beneficiary. Moreover, India imported ~180 MT of non-coking coal as of FY23, providing immediate opportunity for Coal India, medium term trigger.

Volume led growth to continue: CIL achieved its highest production volume of 774 MT in FY24 driven by robust demand form power sector. With government aiming for 24x7 power supply for all by 2025, CIL has set an ambitious target of achieving a production volume to 1000 MT by FY26E. We have forecast coal production at CIL to grow at a CAGR of 11% over FY23-26E to 950 MT by FY26E. Key enablers for double digit volume growth are: (i) better evacuation infrastructure in terms of First Mile Connectivity projects (ii) Engaging with 15 Mine Developer Operators (MDO) for a targeted capacity of ~170 MT and (iii) revival of Underground Mines wherein it has identified 30 discontinued mines with reserve of ~600 MT.

Coal India Share Price Target

"We have a positive view on Coal India amidst healthy volume growth on anvil, superlative return ratios (RoCE's at ~40%), healthy net cash positive b/s and its leading contribution to India's energy needs. We assign BUY rating to Coal India with target price of Rs 550 wherein we have valued it at 5x EV/EBITDA on FY26E. High dividend yield of ~6% is added positive," said ICICI Direct Research in a note.

LIC's Stake In Coal India

During the quarter ended December 2023 or Q3FY24, insurance giant LIC held 65,33,78,492 shares of Coal India which is 10.60% of the total paid-up capital of the company as per the data available on BSE.

Disclaimer

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