Coal India dips 8% in 2 days as mgmt flags drop in e-auction premium in Q4

The stock had hit a record high of Rs 487.75 on Friday, February 16 and has rallied 75 per cent in the past five months

Shares of Coal India were under pressure for the second straight session on Tuesday, slipping 4 per cent on BSE to 441.35. The stock is now down 8 per cent in two days on profit booking following management's comments that e-auction premiums have declined in the current quarter. 

The company reportedly told analysts that e-auction premiums dropped to 48-50 per cent in January 2024 and 38 percent in February 2024. 

With today’s decline, the stock of the state-owned company has corrected nearly 10 per cent from its record high level of Rs 487.75 touched in Friday’s intra-day trade.

Prior to that, in the past five months, Coal India had zoomed 75 per cent from a level of Rs 279.30.

 

Coal India in its October-December (Q3FY24) conference call moderated its production target from 780 million tonnes (MT)/850 MT to 770 MT/838 MT in FY24/FY25 due to land issues in one of the mines of South Eastern Coalfields (SECL).

However management was optimistic of covering the shortfall from other mines.

e-auction premiums have softened in Q4FY24 to 35-50 per cent, but volumes via the e-auction route have improved (15 per cent vs 8-9 per cent in 9MFY24). The company is committed to supplying at least 610 MT to the power sector in FY24 and increasing the dispatch by 50 MT per year going forward, it said. 

We believe Coal India performance is likely to be driven by volume growth. Street will watch out for e-auction premium, which is down to 36-48 per cent thus far in Q4FY24. In our view, the higher e-auction volume is likely to completely offset the adverse impact of lower premium. However, any upside might be constrained if e-auction premium continues to stay low," said ICICI Securities in a note. 

It has cut earnings per share estimate by 3 per cent/1 per cent for FY25/26, respectively, downgrading the stock to 'Add' from Buy. The revised target price is Rs 500. 

Based on the year to date performance, Coal India is confident of achieving 770 MT of production during FY24, with five subsidiaries on track to achieve 100 per cent of the annual production target. The number is lower than earlier guidance as SECL subsidiary would fall short by 8-9 MT due to some pending clearance for mine, said Motilal Oswal Financial Services (MOFSL).

In line with the recent trend in e-auction premiums, the brokerage said it has trimmed its e-auction premium for FY26E while increasing e-auction volumes.

As a result, MOFSL has increased FY26E revenue/EBITDA/APAT by 1 per cent/9 per cent/7 per cent.

“Coal India trades at EV/EBITDA of 4.9x FY26E. We reiterate our BUY rating on the stock with a revised target price of Rs 520 (5.5x EV/EBITDA). We believe Coal India is well placed to capitalize on the growth opportunity ahead,” the brokerage said.

“Given the consistent growth in e-auction volume (62MT/79MT in FY23/FY24E), momentum in power demand (peak power/energy demand 12.7 per cent/7.6 per cent YoY 9MFY24), revival of thermal capex and revised production targets; we tweak our estimates with no material impact on our thesis,” analysts at JM Financial said.

The brokerage has maintained a ‘BUY’ rating on the stock with an unchanged target price of Rs 500.