The price target implies a potential upside of 32% from Tuesday’s closing levels.
Morgan Stanley wrote in its note that a strong power demand outlook for India will support Coal India’s volumes and earnings growth over the next few years. It expects volumes to be the key earnings driver over the medium term.
The brokerage expects realisations to remain stable as higher fuel supply agreement (FSA) prices should be largely offset by a normalisation in e-auction premiums.
Coal India’s consolidated Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) to grow at a Compounded Annual Growth Rate (CAGR) of 7% over the next three years, which is similar to the volume growth trajectory, according to Morgan Stanley.
The state-run Coal miner has seen a 45% to 65% increase in consensus estimates for financial year 2026-2027 over the last 12 months, despite some downgrades after its September quarter results.
Given the strong operating cashflows over the next few years, Morgan Stanley expects Coal India to maintain a strong cash balance, adjusted for high capex and dividend payouts and it is this strong cash flow that can lead to re-rating for Coal India over the next few years.
“The stock has underperformed recently, also on the back of its September quarter results, and we think the current level is a good entry point,” Morgan Stanley wrote in its note.
A sharp moderation in power demand or rapid progress of green energy transition, material delay in coal-based power plant capacity additions, material delay in expansion plans and a sharp fall in international coal prices are some of the key risks for Coal India going forward.
Shares of Coal India ended 1.4% lower on Tuesday at ₹411.5. The stock is down 24% from its recent peak of ₹543. The correction from its peak has trimmed its 2024 gains to just 8%.
