Coal India share price slumps 3% after Nuvama slashes target price; recommends ’sell on rise’ strategy for the PSU stock

On Wednesday's trading session, Coal India share price dropped by more than 3% after brokerage Nuvama decreased the target price for the PSU stock by 4% to ₹542 from the previous ₹567. According to the brokerage's report, it noted a decline in volumes in Aug-24, even after adjusting for monsoons, with Coal India recording sales volumes of 52.1mt, representing a 12% year-on-year (YoY) decrease. The company's profits were also negatively impacted by a reduction in eauction prices to ₹2,336/t in Aug-24, marking an 11% month-on-month (MoM) decline. Nuvama has maintained their stance as ‘sell on rise’.

“We are cutting Coal India’s volume by 1% YoY each in FY25/FY26 to 784mt/823mt to factor in weakness in volume until Aug-24. This along with muted prices compel us to reduce FY25E/26E EBITDA by 4%/4.5%; yielding a lower target price of ₹542 (earlier ₹567). We are recommending booking profits on each rise,” added the brokerage house.

According to the brokerage's study, the globe is not yet prepared to transition to renewable energy. So for the foreseeable future, coal will continue to be the most popular fuel. Additionally, as a result of the disruption in Russia's natural gas supply, demand has switched to coal. Domestically, growing industrial activity is driving up electricity consumption. Over FY24–26E, volume is predicted to grow at a 5% CAGR to 831 million MT. By FY28, Coal India plans to increase its production and evacuation capacity to around one billion tons.

“On account of sustained high coal demand, E-auction prices are likely to normalise in FY25. We expect DPS of ₹25/25 in FY25/FY26E,” said Nuvama in its report.

The brokerage emphasized several key risks, including a decline in international coal prices, a significant drop in e-auction prices, lower-than-anticipated volume growth, and the potential sale of the Government of India's stake through Offer for Sale (OFS).

Coal India share price

Coal India share price today opened at ₹515.05 apiece on BSE, the stock touched an intraday low of ₹502.45, and an intraday high of ₹516.20. According to Ruchit Jain, Lead Research Analyst at 5paisa, Coal India share price is in a short term consolidation phase where support is seen around ₹490. On the higher side, resistance is seen in the range of ₹530-540.

“We expect the stock to consolidate within this range in the short term,” said Jain.

According to trendlyne data, the share price of Coal India increased by 115.13% in the last year, surpassing its sector by 50.3%.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.