On Monday, Coal India Ltd (COAL:IN) received an updated price target from Kotak, with the firm raising the target to INR420.00 from INR410.00, while the Sell rating on the stock remains unchanged. The adjustment follows Coal India's recent financial report which indicated a significant drop in profit after tax (PAT) and earnings before interest, taxes, depreciation, and amortization (EBITDA).
The company's PAT fell by 22% year-over-year, amounting to Rs62 billion. The adjusted EBITDA, not including overburden removal (OBR), also saw a decline of 38% year-over-year to Rs37 billion. This decline in earnings was attributed to a 3.5% year-over-year decrease in volumes, which totaled 168 million tons, and a 5.8% year-over-year decrease in blended realizations at Rs1,626 per ton.
The lower-than-expected realizations were largely due to a 13% year-over-year reduction in e-auction prices, which came in at Rs2,472 per ton. Furthermore, the fixed supply agreement (FSA) realizations were also weak, showing a 5% year-over-year decline at Rs1,462 per ton.
Kotak highlights that Coal India is facing challenges with volume growth in the medium term. This is partly due to 30 gigawatts of under-construction capacity, which is being added to the existing base of 217 gigawatts.
Additionally, the firm points out that the company's realizations are under pressure with e-auction premiums remaining soft. Despite the increase in the price target, Kotak maintains its Sell recommendation on the stock, with a revised fair value of INR420, up from INR410.
InvestingPro Insights
While Coal India faces challenges in volume growth and realizations, InvestingPro data reveals some interesting financial aspects. Despite the recent profit decline, the company maintains a strong financial position. An InvestingPro Tip highlights that Coal India holds more cash than debt on its balance sheet, indicating financial stability even in challenging market conditions.
Additionally, Coal India has demonstrated a commitment to shareholder returns. Another InvestingPro Tip notes that the company has raised its dividend for 3 consecutive years and has maintained dividend payments for 14 consecutive years. This consistent dividend policy may appeal to income-focused investors, especially given the current market uncertainties.
It's worth noting that Coal India's stock performance has been mixed. InvestingPro data shows a 1-week price total return of 0.55%, but a year-to-date decline of 9.75%. This aligns with the challenges mentioned in the article regarding volume growth and realizations.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Coal India, providing a deeper understanding of the company's financial health and market position.
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