Coal India witnessed a notable surge of more than 3%, reaching 52-week highs during Tuesday’s intraday trading, a noteworthy feat as benchmark indices experienced a 0.7% decline. The positive investor sentiment towards Coal India is attributed to its impressive production performance, evident in the recently released December volume numbers, showcasing continued robust volume momentum.
In December 2023, Coal India reported a production of 71.9 million tons, marking an 8.3% year-on-year increase. The cumulative production for the first nine months (April-December period) stood at 531.9 million tons, reflecting a substantial 11% year-on-year growth.
Sales figures for December reached 66.6 million tons, a 6.2% year-on-year increase from December 2022, which recorded sales of 62.7 million tons. Cumulatively, Coal India’s sales for the first nine months of FY24 reached 552 million tons, showing an 11% growth.
The robust growth in volume numbers contributes positively to Coal India’s earnings outlook, supported by the strong demand for coal in the country, primarily driven by increasing power demand. The company’s long-term Fuel Supply Agreement with power producers has enabled it to ramp up production to meet the rising demand. Coal India aims to achieve a production target of 780 million tons in FY24 and 850 million tons in FY25. Remarkably, the company has already achieved nearly 73% of its production target for FY24. Analysts at Motilal Oswal Financial Services estimate production figures of 751 million tons and 850 million tons for FY24 and FY25, respectively.
The upward trajectory in production is also seen as a positive factor for the growth of more lucrative e-auction volumes. Approximately 10% of Coal India’s volumes are sold in the open market through e-auctions. Despite a softening in e-auction premiums in the first half of FY23, a rebound has been observed. According to analysts at Motilal Oswal Financial Services, the E-auction premium has surged to 80-100% in recent months, driven by increased demand and rising international prices.
With strong execution and stable volumes, Motilal Oswal’s target price of ₹430 suggests further upside for Coal India, currently trading at ₹392. Analysts at Jefferies India Pvt Ltd also express a preference for Coal India in the metals & mining sector, highlighting its attractive valuations at 7.3 times FY25 estimated price to earnings and a 7% dividend yield, despite a 6% outperformance to Nifty-50 since mid-November.
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