Coal India: Worthy Investment Or Risky Business?

Coal India Ltd. is a Large Cap company operating in the mining sector, with a market cap of Rs 261,330.49 Crore. The company has witnessed a QoQ revenue decline of 16.09%, the lowest in the last 3 years. However, the stock has given a 3-year return of 146.97% as compared to Nifty 100, which gave a return of 37.06%. Coal India has spent less than 1% of its operating revenues towards interest expenses and 34.28% towards employee costs in the year ending March 31, 2024. The company has a median target price of Rs. 520.73 in 12 months, with a high estimate of Rs. 614.0 and a low estimate of Rs. 180.0. Coal India's share price as of November 8, 2024, was Rs. 424.05. With a history of strong financial performance and a positive outlook from analysts, Coal India could be a promising investment opportunity. However, it is important to conduct thorough research and consult with a financial advisor before making any investment decisions.

Coal India's share price

Coal India Ltd. is a Large Cap company operating in the Mining sector. Incorporated in 1973, it is a 'Maharatna' company under the Ministry of Coal, Government of India. The company is engaged in mining and production and operates coal washeries.

As of 8 November 2024, the Coal India share price was Rs 424.05, down 2.60% from its previous close of Rs 435.35. The 52-week high and low of the share price were Rs 543.55 and Rs 314.55, respectively. The company has a market cap of Rs 261,330.49 Crore.

Coal India has shown a 3-year return of 146.97% compared to Nifty 100's 37.06%. The company has spent less than 1% of its operating revenues on interest expenses and 34.28% on employee costs in the year ending 31 March 2024.

Analysts have set a median target price of Rs. 520.73 in 12 months, with a high estimate of Rs. 614.0 and a low estimate of Rs. 180.0.

Coal India's financial performance

Revenue and Profitability

Coal India Ltd. has experienced fluctuations in its revenue and profitability in recent years. In the quarter ended 30-09-2024, the company reported a Consolidated Total Income of Rs 32,177.92 Crore, which was a 16.09% decline from the previous quarter and a 7.43% decrease from the same quarter the previous year. The company reported a net profit after tax of Rs 6,137.66 Crore in the latest quarter.

Looking further back, in the quarter ended 30-06-2021, the company reported a Consolidated Total Income of Rs 25,963.12 Crore, a 7.19% decrease from the previous quarter but a 34.72% increase from the same quarter the previous year. The company reported a net profit after tax of Rs 3,175.22 Crore in that quarter.

Expenses and Investments

Coal India has maintained tight control over its expenses, with interest expenses remaining below 1% of operating revenues. In the year ending 31-03-2024, the company spent 34.28% of its operating revenues on employee costs.

The company has also been investing in future growth. In its FY 19-20 management discussion and analysis, Coal India outlined ambitious production targets, aiming for a 22% growth in coal supply in 2020-21. The company has also been exploring opportunities to diversify into the coal-to-chemical business to improve its financial performance and long-term sustainability.

Share Price and Returns

Coal India's share price has experienced ups and downs in recent times. As of 08-11-2024, the share price was Rs. 424.05, down 2.60% from its previous close. The 52-week high and low for the share price were Rs 543.55 and Rs 314.55, respectively.

Looking at returns, Coal India has provided strong returns to investors over the past three years. The stock generated a 146.97% return over three years, outperforming the Nifty 100 and Nifty Metal indices, which returned 37.06% and 62.49%, respectively, over the same period.

Dividends

Coal India has maintained a healthy dividend payout of 49.8% and offers a good dividend yield of 6.22%. The company announced a final dividend of 157.5% on 05-11-2024, with an ex-dividend date of 05-11-2024.

Valuation and Ratings

Coal India is considered a Large Cap company, with a market cap of Rs 261,330.49 Crore as of 30-09-2024. The company's price-to-earnings (PE) ratio is 7.44, and its price-to-book (PB) ratio is 3.21. These ratios are in line with those of its competitors.

Analysts' recommendations on Coal India stock vary, with a mean recommendation of 'Buy'. Some analysts have set a target price for the stock, with a median target of Rs. 520.73 in 12 months.

Coal India's dividend yield

Coal India has a strong track record of dividend payments, having declared 28 dividends since February 2011. In the quarter ending March 2023, the company's dividend yield was 12.13% and it has consistently paid dividends for the last five years.

In the past 12 months, Coal India has declared an equity dividend of 255% (or Rs 25.5 per share). At the current share price of Rs 432.25, this results in a dividend yield of 5.9%.

As of June 30, 2021, promoters held 66.1% of the company, FIIs held 6.6%, DIIs 21.6%, and public and others 5.7%.

Analysts have set a median target price of Rs 520.73 in 12 months.

Coal India's market capitalisation

As of December 2023, Coal India's market capitalization stands at Rs 2.11 lakh crore. This figure reflects a substantial presence in the market, positioning the company as a leading player in the coal industry.

Coal India's market capitalization is underpinned by its strong financial performance and growth prospects. The company has consistently delivered impressive returns, outperforming broader market indices, and its revenue has been on a stable upward trajectory.

Coal India's market capitalization also benefits from its position as the world's largest coal producer and supplier, with a dominant market presence in India, producing over 80% of the country's coal. This monopoly status is further strengthened by its vast coal reserves, efficient infrastructure, and diverse range of coal products.

The company's market capitalization is further enhanced by its commitment to shareholder value, demonstrated through its attractive dividend yield and payout policy. Coal India's dividend yield of 7.16% and payout ratio of 53.3% (as of December 1, 2023) make it one of the highest dividend-paying entities in India.

In summary, Coal India's market capitalization is a result of its strong financial health, dominant market position, and commitment to rewarding its shareholders.

Coal India's future prospects

One factor is the company's financial performance. In the quarter ended 30-09-2024, Coal India Ltd. reported a Consolidated Total Income of Rs 32,177.92 Crore, down 16.09% from the last quarter—the lowest in the last three years. The company has also been facing challenges with cash flow, as indicated by a decrease in cash from investing activities. However, Coal India has delivered strong returns over the past three years, with a 3-year return of 146.97% as of the last trading session.

Another factor to consider is the sector in which Coal India operates. Coal is a dominant energy source in India, providing about half of the country's energy. It is available domestically and is cheap, especially without a carbon tax. However, coal faces pressure from renewable energy sources, which are the cheapest option for new builds. Additionally, local air pollution is a significant concern in India, with 7 out of the world's top 10 polluted cities located in the country. This may further impact coal-based power generation.

To address these challenges, Coal India is exploring possibilities for cleaner and alternate uses of coal. The company is considering setting up a Surface Coal Gasification-based Coal-to-Methanol plant and diversifying into the coal-to-chemical business to improve its financial performance and long-term sustainability. These initiatives align with India's ambitious renewable energy targets for 2030, which call for a fourfold growth in wind, solar, and hydro electricity capacity.

In summary, Coal India's future prospects depend on its ability to adapt to the energy transition, address environmental concerns, and maintain its financial performance. While there are challenges and uncertainties, Coal India has taken steps towards cleaner energy and has delivered strong returns in the past.

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