Motilal Oswal Reiterates Bullish Stance on Coal India, Sets ₹485 Target Price with 26% Upside

Domestic brokerage firm Motilal Oswal remains optimistic on Coal India, citing strong production growth, higher e-auction volumes, and strategic capex investments as key drivers for its bullish outlook.

Coal India Named Top Pick with ₹485 Target Price

Motilal Oswal has identified Coal India as its top sectoral pick, setting a target price of ₹485, implying an upside potential of 26% from the current market price.

• Stock Performance: Coal India shares were trading at ₹380.25 on the Bombay Stock Exchange (BSE) as of 10:15 AM today.
• Growth Drivers: The brokerage highlights strong production growth, higher e-auction volumes, and robust capex investments as key factors supporting its bullish stance.
• Stock Valuation: The recent correction in Coal India’s stock price has presented an attractive entry point, with shares trading below their 10-year historical average.

Coal India’s Dominance in India’s Energy Sector

Coal India is the largest coal producer in the country, contributing over 75% of total coal production and supplying more than 80% of its output to the power sector.

• Thermal Power’s Role:
  • Thermal power continues to account for 75% of total electricity generation and holds a 45% share in India’s installed capacity.
  • India’s growing energy needs: With India targeting a $5 trillion economy, coal demand is expected to reach 1.3-1.5 billion tonnes by 2030, ensuring continued reliance on thermal power despite the push toward renewable energy.
• Strategic Advantage: Given Coal India’s dominant market position, Motilal Oswal believes the company is well-placed to benefit from sustained coal demand in the coming years.

E-Auction Volume Growth and Pricing Power to Drive Margins

Coal India’s focus on e-auctions and premium pricing strategies is expected to significantly enhance its financial performance.

• E-Auction Performance:
  • In FY24, the company sold 70 million tonnes (MT) of coal via e-auctions, securing a 99% price premium.
  • In the first nine months of FY25 (9MFY25), e-auction volumes stood at 58 MT, with a 67% premium.
  • Coal India aims to increase e-auction volumes to 15% of total sales while maintaining a 60% price premium, boosting net sales realization (NSR) and operating margins.
• Recent Price Hike:
  • A ₹300 per tonne price hike at Coal India’s Northern Coalfields (NCL) subsidiary is expected to contribute ₹3,900 crore in additional revenue from FY26 onward.

Massive Capex Plans to Enhance Infrastructure and Production

Coal India has ramped up capital expenditure (capex) to ₹20,000 crore annually, focusing on mine expansion, logistics, and diversification into renewables.

• Increased Infrastructure Investments:
  • Before FY20, Coal India’s annual capex was between ₹6,500-8,500 crore.
  • By FY24, this had more than doubled to ₹16,700 crore.
  • The company has set an annual capex target of ₹20,000 crore for FY25 and FY26.
• Key Areas of Investment:
  • Railway corridors for coal evacuation.
  • Land acquisitions for mining expansion.
  • Heavy Earth Moving Machinery (HEMM) procurement to improve operational efficiency.
  • Coal Handling Plants (CHPs) to streamline production.

Diversification into Renewable Energy and Coal Gasification

Coal India is actively expanding its business beyond traditional coal mining.

• Mine expansions are being financed through internal accruals and partial borrowings.
• The company is diversifying into renewable energy and coal gasification, aligning with India’s long-term energy transition goals.
• Coking Coal Washeries:
  • Coal India currently operates 12 washeries with a total capacity of 29.35 million tonnes per annum (MTPA).
  • 10 of these cater to coking coal demand.
  • A new 5 MTPA coking coal washery at BCCL has been commissioned.
  • Five additional washeries with a capacity of 14.5 MTPA are planned for CCL.

Brokerage Firm’s Optimism on Coal India’s Future

Motilal Oswal remains highly optimistic about Coal India’s prospects, citing:

• 6% CAGR production growth from FY24 to FY27.
• Rising e-auction volumes and stable price premiums.
• Aggressive capex expansion to drive operational efficiency and profitability.
• Consistent demand for coal despite the renewable energy push.

With these strong growth fundamentals in place, the brokerage firm believes Coal India’s stock has significant upside potential, making it an attractive long-term investment.