Analysts remain divided on Coal India's future prospects after mixed Q3

State-owned Coal India’s Q3 results for FY25 were a mixed bag, showing a decline in most parameters on a year-on-year (Y-o-Y) basis, but some improvement on a quarter-on-quarter (Q-o-Q) basis.

 

The company’s consolidated profit attributable to the owners dropped by 17.1 per cent Y-o-Y to Rs 8,505.6 crore in Q3FY25, compared to Rs 10,253.48 crore in Q3FY24. Revenue remained largely flat, declining 1 per cent Y-o-Y to Rs 35,779.8 crore in Q3FY25, from Rs 36,154 crore in Q3FY24.

 

Operationally, Ebitda decreased 5 per cent to Rs 12,317.2 crore in Q3FY25, from Rs 12,970.6 crore in Q3FY24. The Ebitda margin also contracted to 34.4 per cent in Q3FY25, from 35.9 per cent a year ago.

 

However, when compared to the previous quarter, the numbers showed a strong performance. Profit surged 35.2 per cent Q-o-Q to Rs 8,505.6 crore, up from Rs 6,289.1 crore in Q2FY25. Revenue grew 16.6 per cent Q-o-Q to Rs 35,779.8 crore, from Rs 30,672.9 crore in Q2FY25. Ebitda climbed 42.9 per cent sequentially to Rs 12,317.2 crore, up from Rs 8,617.1 crore in Q2FY25. The Ebitda margin also improved to 34.4 per cent, compared to 28.1 per cent in Q2FY25.

 

Additionally, Coal India declared a second interim dividend of Rs 5.60 for FY25. The company has set Friday, January 31, 2025, as the ‘Record Date’ for this dividend, and payment will be made by February 26, 2025.

 

Coal India share price, on BSE, slipped 2.03 per cent to an intraday low of Rs 367.75 per share, nearing its 52-week low of Rs 361.30, on Tuesday, January 28, 2025.

 

The mixed results have led to differing opinions among brokerages, with Motilal Oswal maintaining a ‘Buy’ rating, Kotak recommending a ‘Sell,’ and Nuvama opting for a ‘Hold.’

 

Motilal Oswal highlighted a decent improvement in Coal India’s Q3FY25 results, following a weaker Q2FY25, which was affected by extended monsoons. Elevated e-auction volumes, coupled with an increase in e-auction premiums, helped support profitability. 

 

Looking ahead to FY26 and FY27, Motilal Oswal expects volumes to improve, boosting earnings performance, while e-auction premiums are expected to remain stable. Additionally, the company’s focus on increasing coal-washer capacity should help improve its market share in both domestic coking and non-coking coal. 

 

The management is also focused on expanding coal mines, which will likely be funded by internal accruals, although some strategic diversification projects, such as renewable energy facilities and coal gasification, may require borrowing. 

 

At the current market price, the stock is trading at 3.3x FY27E EV/Ebitda, and Motilal Oswal reiterates its ‘Buy’ rating with a target price of Rs 480, based on a 4.5x FY27 EV/Ebitda multiple. The brokerage continues to consider Coal India as its top pick in the metals and mining sector.

 

On the other hand, Kotak Institutional Equities has maintained a ‘Sell’ rating and reduced its target price to Rs 360 from Rs 420. Kotak pointed out a 7 per cent year-on-year decline in PAT to Rs 8,500 crore, with adjusted Ebitda (excluding OBR) down 21 per cent Y-o-Y to Rs 7,000 crore. 

 

The earnings weakness was attributed to a 3.5 per cent Y-o-Y decline in average realisation to Rs 1,667/tonne, coupled with modest volume growth of just 1.5 per cent Y-o-Y. 

 

Kotak Institutional Equities believes that Coal India will likely continue to face challenges, particularly due to a lack of coal-based capacity additions in 9MFY25. The brokerage views the arrest in the decline of e-auction realisations as the only positive from the earnings report.

 

Meanwhile, Nuvama has maintained its ‘Hold’ rating, cutting its target price to Rs 419 (excluding the Rs 25 dividend). The brokerage cited factors such as lower e-auction prices, an adverse volume mix, weak volume growth Y-o-Y amid subdued power demand, increased competition, and higher cost of production, which led to a 13 per cent Y-o-Y decline in Ebitda (excluding OBR) to Rs 10,400 crore. 

 

Additionally, Nuvama has lowered its FY25E/26E Ebitda estimates by 3 per cent and 5 per cent, respectively, to account for lower volumes (forecasting a 3.5 per cent volume CAGR over FY25–27E). Despite weak earnings growth (with an Ebitda CAGR of just 3 per cent over FY25–27E), Nuvama noted that the stock offers a ~7 per cent dividend yield (with a dividend per share of Rs 25). However, the brokerage remains cautious, preferring to wait for stronger volume growth before re-entering the stock.

 

According to reports, Morgan Stanley has maintained its ‘Overweight’ rating with a target of Rs 525, citing higher-than-expected Ebitda, though it noted a slight miss on PAT due to higher depreciation. 

 

Meanwhile, JPMorgan reportedly has maintained a ‘Neutral’ rating with a target price of Rs 435.

 

At 10:05 AM, the Coal India share was trading 1.17 per cent lower at Rs 371 apiece. In comparison, BSE Sensex was up 0.55 per cent at 75,777.68.