Nuvama Institutional Equities has reiterated its 'Reduce' rating on state-run Coal India Ltd (CIL) shares, citing ongoing concerns about the company's earnings visibility. Despite the cautious stance, the domestic brokerage increased its target price for CIL's stock.
Coal India reported an in-line EBITDA (excluding overburden removal) of Rs 12,370 crore for the March quarter, marking an 8 percent year-on-year increase. This figure was largely consistent with Nuvama's estimate of Rs 12,220 crore. The growth was primarily attributed to reduced employee expenses and a higher reversal of non-cash stripping provisions.
Why Nuvama Maintained a 'Reduce' Rating
Looking ahead, Nuvama has projected a 4 percent volume Compound Annual Growth Rate (CAGR) for Coal India over the financial years 2026–2028. However, the brokerage highlighted several factors contributing to its cautious outlook:
- Pricing Pressures: Despite higher offerings under e-auction, e-auction prices remain range-bound and do not reflect elevated global coal prices.
- Rising Costs: The company faces increasing mining costs, particularly for explosives and diesel.
- Upcoming Wage Hike: A significant wage hike revision for non-executive employees is anticipated from July 2026, which is expected to further impact costs.
These challenges collectively contribute to low earnings visibility for Coal India, leading Nuvama to trim its FY27 EBITDA estimate by 2 percent.
Target Price Raised Due to Cash Inflows
Despite the 'Reduce' rating, Nuvama raised Coal India's target price to Rs 396 from the previous Rs 384. This upward revision is primarily due to anticipated higher cash inflows resulting from stake sales in CIL's subsidiaries, specifically Bharat Coking Coal India (BCCL) and Central Mine Planning and Design Institute Ltd (CMPDIL).
Nuvama values the stock at 5x FY28E EV/EBITDA, reflecting the impact of these improved cash flows on the company's valuation.
Stock Performance
Following the brokerage's report, Coal India shares saw a gain of 3.10 percent, settling at Rs 466.95 on Tuesday. The stock has demonstrated strong performance over the past six months, rising by 22.22 percent.