Synopsis: Shares of Coal India Limited are in focus after the stock hit a fresh 52-week high amid rising geopolitical tensions in West Asia. Higher global gas prices have improved coal demand expectations, while the company’s strong dividend track record continues to attract investors seeking stable income from PSU stocks.
With the market cap of Rs 2.85 lakh crore, the shares of Coal India Ltd are trading at Rs 463 and are trading at a PE of 9.58, whereas their industry’s PE is at 15.5. The shares have given a return of more than 238% in the last 5 years.
Coal India shares are in focus as its stock hit a fresh 52-week high as geopolitical tensions rise in West Asia. The stock hit its 52-week high of Rs 476, after which some profit booking was seen, and the stock currently trades at the Rs 465 level. Despite volatility in its stock, Coal India is in focus, as its dividend history is strong.
Coal India is considered a high-dividend-paying PSU stock with a dividend payout of 46.2%, with its average dividend payout being 45.1% over the last three years. Stable cash flows and strong earnings visibility for Coal India have helped it return a substantial part of its profits in the form of dividends to its shareholders.
Geopolitical Tensions Help Coal Demand Outlook
The recent rally in the stock has been partly driven by the US-Iran conflict in West Asia, which has led to concerns over energy supply disruptions. An increase in natural gas prices in global markets is likely to benefit coal, which is a positive for coal companies like Coal India.
An increase in gas prices would result in a higher demand for coal as a substitute fuel, which is cheaper than gas. This has helped Coal India emerge as one of the top gainers in the Nifty Energy index, with its stock rising by over 5 per cent during the week.
Record Coal Stockpiles Support Summer Power Demand
Coal India Limited could benefit from the rising demand for coal as India prepares for a surge in electricity consumption during the summer months. According to the Coal Ministry, the country currently holds around 210 million tonnes of coal stock, enough for about 88 days of consumption, while Coal India’s pithead stock alone stands at a record 121.4 million tonnes.
With natural gas supplies disrupted due to the US–Israeli conflict involving Iran, power producers may rely more heavily on coal for electricity generation. Since coal already accounts for nearly three-fourths of India’s power generation, the shift away from gas towards coal could support higher demand and improved off-take for Coal India’s production.
Brokerages remain cautious despite near-term upside
Global broking HSBC has retained its hold rating on Coal India but increased the target price to 420. The brokerage is of the view that an increase in natural gas prices coupled with robust regional coal prices would boost e-auction premiums and volumes.
The brokerage also increased its FY27 earnings estimates by 13% to reflect better pricing trends. However, the brokerage did not increase FY28 earnings estimates due to structural challenges like domestic coal oversupply and weak demand for thermal power.
However, Jefferies has retained a buy rating on the stock but increased the target price to 485 from 450. The brokerage is of the view that earnings growth would improve over the next few years. The brokerage is of the view that better e-auction premiums and demand trends would boost the earnings growth of the company.
Government data also suggests that the country has sufficient coal stocks worth 210 million tonnes to meet demand for almost 88 days. Additionally, the proposed IPO of Central Mine Planning and Design Institute Limited, which would involve the sale of up to 7.14 crore equity shares representing 10% equity capital of the company, has also kept the stock in focus.
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