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HDFC Securities
Coal India (Buy)
Target: ₹147
CMP: ₹136.80
Coal is the country's irreplaceable primary energy source. Coal is at the forefront of the nation's energy march in meeting the fuel demand. Additionally, coal will continue to stoke up many non-power industries as wel,l viz. cement, fertilisers, sponge iron, aluminium and a host of other industries. In India, coal accounts for around 55 per cent of primary commercial energy and nearly 72 per cent of the entire power generated.
The focus on renewable and other clean form of energy sources remains a concern for the longer term. However, we believe that those concerns have already been factored in the current prices.
Coal India is the single largest producer of the coal in the world. The stock has significantly underperformed the benchmark indices over the last few years on the back of multiple factors acting against the company.
We believe most of the negatives are priced in and the extent of de-rating in the stock is not justified given its fundamentals. We expect Coal India’s earnings may gradually stabilise on the back of recovery in coal demand. This could ease the cash crunch at its subsidiaries caused by the slowdown in coal demand and record-high outstanding payments from power companies. Coal India is expected to maintain dividend around the same level of last year and may also consider buy-back of its shares.
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