Coal India share price

Coal India Share Price Slump After Nuvama’s Target Price Reduction: What You Need to Know

Coal India’s share price experienced a significant decline of more than 3% following a revised target price by brokerage firm Nuvama. The target price was slashed to ₹542 from the previous ₹567, reflecting concerns over declining sales volumes, fluctuating coal prices, and potential government stake sales.

Key Points:

1. Price Decline:
   • Coal India shares dropped over 3% in Wednesday’s trading session.
   • Nuvama reduced its target price for Coal India by 4%, setting it at ₹542.
   • The price reduction is attributed to a 12% year-on-year (YoY) drop in sales volumes for August 2024, despite adjustments for monsoons.
2. Sales Volume and Pricing Concerns:
   • Coal India recorded sales volumes of 52.1 million tonnes (mt) in August 2024, marking a 12% YoY decline.
   • The company’s profits were negatively impacted by a reduction in e-auction prices to ₹2,336 per tonne, reflecting an 11% month-on-month (MoM) decline.
3. Nuvama’s Forecast:
   • Nuvama anticipates a continued decline in Coal India’s sales volumes, projecting a 1% YoY reduction in FY25 and FY26.
   • This forecast prompted a 4% and 4.5% reduction in expected EBITDA for FY25 and FY26, respectively.
   • Consequently, Nuvama advises investors to adopt a ‘sell on rise’ strategy, recommending profit booking on any upward movements in the stock.
4. Coal Demand and Future Outlook:
   • Despite the challenges, coal remains a crucial energy source globally, especially in the wake of disruptions in Russia’s natural gas supply.
   • Domestically, increased industrial activity is driving higher electricity consumption, which is expected to support coal demand.
   • Coal India’s volume is predicted to grow at a 5% compound annual growth rate (CAGR) over FY24–26E, with a target to increase production and evacuation capacity to one billion tonnes by FY28.
5. Dividend and Risks:
   • Nuvama expects dividend per share (DPS) of ₹25 for FY25 and FY26.
   • Key risks highlighted by the brokerage include a decline in international coal prices, further reductions in e-auction prices, lower-than-expected volume growth, and the potential sale of the Government of India’s stake through an Offer for Sale (OFS).

Stock Performance:

• On the BSE, Coal India shares opened at ₹515.05 apiece, with an intraday low of ₹502.45 and a high of ₹516.20.
• According to Ruchit Jain, Lead Research Analyst at 5paisa, the stock is currently in a short-term consolidation phase with support around ₹490 and resistance in the range of ₹530-540.
• Over the past year, Coal India’s share price has increased by 115.13%, outperforming its sector by 50.3%.

Advantages:

1. Continued Demand for Coal:
   • Despite global shifts toward renewable energy, coal remains a vital energy source, particularly in countries with high industrial activity.
   • Coal India is positioned to benefit from sustained domestic demand and disruptions in other energy sources.
2. Growth Prospects:
   • The projected 5% CAGR in volume growth and plans to increase production capacity to one billion tonnes by FY28 indicate long-term growth potential.
3. Dividend Yield:
   • With expected DPS of ₹25 for FY25 and FY26, Coal India offers an attractive dividend yield, providing steady income to investors.

Disadvantages:

1. Volatility in Coal Prices:
   • Coal India’s profitability is vulnerable to fluctuations in international coal prices and e-auction prices, which can impact margins.
2. Sales Volume Decline:
   • The 12% YoY decline in sales volumes for August 2024 raises concerns about the company’s ability to sustain growth.
3. Government Stake Sale Risk:
   • The potential sale of the Government of India’s stake through an OFS could lead to a dilution of existing shareholders’ equity and put downward pressure on the stock price.

Conclusion:

Coal India’s share price has faced pressure due to declining sales volumes, fluctuating coal prices, and potential government stake sales. While the company is positioned to benefit from ongoing demand for coal, especially in the domestic market, investors should be cautious of the risks associated with price volatility and the impact on profitability. The ‘sell on rise’ strategy recommended by Nuvama suggests that investors may want to consider booking profits during any upward movement in the stock.

FAQs:

1. Why did Coal India’s share price decline?
   • The share price declined by over 3% after Nuvama reduced the target price due to concerns over declining sales volumes, fluctuating coal prices, and potential government stake sales.
2. What is Nuvama’s target price for Coal India?
   • Nuvama has revised its target price for Coal India to ₹542 from the previous ₹567.
3. What are the key risks associated with Coal India?
   • Key risks include a decline in international coal prices, a significant drop in e-auction prices, lower-than-expected volume growth, and the potential sale of the Government of India’s stake through an OFS.
4. What is the growth outlook for Coal India?
   • Coal India’s volume is predicted to grow at a 5% CAGR over FY24–26E, with plans to increase production and evacuation capacity to one billion tonnes by FY28.
5. Is Coal India offering dividends?
   • Yes, Nuvama expects a dividend per share (DPS) of ₹25 for FY25 and FY26.

Coal India share price

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