Jefferies upgrades Coal India to buy; 5 reasons why stock may surge 23%
Jefferies has upgraded Coal India (CIL) to buy following an investors call by the company on Tuesday. The US-based brokerage's optimism stems from the company's focus on volume growth, transformation in its coal evacuation infrastructure and employee reduction cost among other things.
The stock was trading at Rs 333.50 on the NSE on Wednesday around 10:40 am, down by Rs 0.70 or 0.21% from the Tuesday closing price.
Jefferies said in a note that Coal India's volume growth trajectory has improved and will likely sustain amid India's strong economic growth outlook and rising power consumption.
A lower-than-expected cost trajectory has significantly improved CIL' earnings outlook, Jefferies said, as it estimated the company's FY24-25 EPS at 22-29% and above Street's estimates.
«Despite the 45% rally in the last 3 months, Coal India is trading at a reasonable 6.6X FY25E PE. Our price target of Rs 385 implies TSR (total stock return) of 23% including 7% dividend yield,» the brokerage note said.
The state miner's September quarter earnings beat Jefferies' estimates.
CIL's Q2 consolidated net profit stood at Rs 6,800 crore which was up from Rs 6,044 crore reported by it in the year ago period. Meanwhile, the revenue from operations stood at Rs 32,776
crore which was up from Rs 29,838 crore in Q2FY23.
Jefferies has listed five triggers that may propel the stock upwards:
1) In its investors call, CIL highlighted a strong emphasis on delivering sustained volume growth amid the government's high focus on ensuring adequate coal supply for power plants.
The company believes it is on track to produce 780mt in FY24 which is above Jefferies' earlier estimates of 774mt. The state-run company is targeting 850mt in FY25 versus 820mt,
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