Coal India stock hits fresh 52-week high; highest-ever dividend payout likely
Shares of Coal India have surged to a new 52-week high, reaching Rs 300.4 per share. Nuvama Institutional Equities, a respected brokerage house, has expressed a favorable view on Coal India’s prospects. Their optimism is grounded in several key factors that suggest a promising future for the company.
Firstly, Coal India is poised for significant growth in volume. This growth is anticipated due to various factors, including rising demand for thermal power, especially in the latter half of FY24 as the monsoon recedes and hydro/wind generation decreases. The decline in alternative energy sources during this period is expected to boost the need for coal in power generation, potentially driving up Coal India’s sales volume.
Secondly, Coal India has benefited from improved e-auction prices. The rise in global coal prices and an upswing in industrial activity have resulted in a substantial increase in the e-auction premium. In the second quarter, this premium surged to 106 percent, up from 54 percent in the first fiscal quarter. This uptick in prices signifies a more favorable pricing environment for Coal India’s coal products.
Additionally, there is optimism surrounding the possibility of Coal India offering an all-time high dividend in H2FY24. Nuvama Institutional Equities has raised their Dividend Per Share (DPS) estimate for Coal India, projecting a significant increase in dividends for FY24 and FY25. This potential dividend increase could make the company even more attractive to investors seeking income opportunities.
In summary, Coal India appears to be in a strong position with the confluence of factors such as volume growth, improved e-auction prices, and the prospect of record-high dividends. These elements collectively contribute to Nuvama’s positive outlook and underline the company’s potential for continued success in the near future.
Despite the stock’s 25 percent rally since September 23, Nuvama anticipates further upside potential of 35 percent within a year, excluding the expected dividend of Rs 30 in H2FY24E and Rs 25 in FY25E. The brokerage firm expects an increase in demand for thermal power in H2FY24 as the monsoon recedes and hydro/wind generation declines. Moreover, the rise in global coal prices, coupled with an upturn in industrial activity, has pushed up the e-auction premium to 106 percent in the second quarter, compared to 54 percent in the first fiscal quarter. This suggests a favorable market environment for Coal India.
Nuvama’s positive assessment of Coal India’s prospects has led them to revise their 12-month target price to Rs 389, up from the previous target of Rs 361. This revised target represents a 35 percent potential upside from the closing price of Rs 288 per share on October 9.
As of 1 p.m., the company’s shares were trading near the day’s high at Rs 298.85 per equity share. This increase in coal-based power generation by 16.5 percent YoY in September, driven by rising temperatures and a hydropower output shortfall, supports Nuvama’s bullish outlook. They believe that with the expected continued high demand for thermal coal, Coal India is well-positioned to meet the increasing coal demand in the market. This positive sentiment is reflected in the stock’s performance and the brokerage’s revised target price.
Nuvama Institutional Equities has noted that Coal India’s current dividend yield stands at an attractive 8.06 percent. Over the past 12 months, Coal India has declared an equity dividend totaling Rs 24.25 per share.
Nuvama has raised its estimate for Dividend Per Share (DPS) from Rs 20 to Rs 30 in FY24, and further to Rs 35 in FY25. They suggest that the FY24 DPS of Rs 30 could be an interim dividend payout, likely to be paid out in H2FY24. This would result in an annualized dividend yield of approximately 21 percent.
One key factor contributing to the possibility of such high dividends is that, in a pre-election year, Coal India is expected to generate significant free cash flow, projected to be Rs 220 billion in FY24 and Rs 195 billion in FY25. Nuvama highlights that with increasing volumes, a partial Fuel Supply Agreement (FSA) price hike (applicable to 30 percent of the volume), and costs reaching their peak, Coal India is expected to continue generating EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) well above the average in the foreseeable future. This robust financial performance provides a strong basis for the expectation of substantial dividends in the coming years.
