First price increase for Coal India since 2018; here are some updated share price targets

Coal India: The price increase is expected to bring in an extra Rs 2,700 crore in income for Coal India in FY24 and help the PSU cover 50% of the higher employee costs that will come after the wage increase announced in January 2023.

Analysts liked Coal India’s move to raise prices for its high-grade (G2-G10) non-coking coal by 8% as of May 31. However, they do not expect any more price hikes in the near future due to rising inflation and upcoming elections.

The price increase is expected to bring in an extra Rs 2,700 crore for Coal India in FY24 and help the PSU make up for 50% of the higher employee costs that will come after the wage increase announced in January 2023. Analysts said that the increase, along with higher sales in FY24, could make up for the drop in Ebitda.

This would be Coal India’s first big price increase since January 2018, and Nuvama Institutional Equities thinks the company may raise prices for G11-plus after the general elections.

“Coal India has taken a practical approach by announcing a price rise of 8% over the notified price. The price increase goes into effect on May 31, 2023, for high-quality G2–G10 coal, which makes up 30% of FY23 supply. “The increase implies a 3% increase in FSA prices (i.e. Rs 45/tonne) – revenue impact of Rs 2,700 for the remainder of FY24, i.e. Rs 3,200 crore annually,” Nuvama Institutional Equities stated. This does not include grades G11 and higher, which are used primarily by power firms.

Motilal Oswal said that the move should make up for almost half of the higher wage bill. This is because Coal India and four central trade unions came to a deal under NCWA-XI. It said that after the recent talks, the wage bill is likely to go up by Rs 6,000 crore in FY24.

Motilal Oswal said that more rises like this are unlikely in the near future because of rising prices and upcoming elections. It was said that e-auction prices have come down a lot since they were at their highest. It said that its valuation figures already took into account a possible drop in e-auction premiums, which are similar to the premiums that are already in place. This took into account the possible drop in revenues.

Nuvama said that the price increase under the FSA after five years was much-needed, especially since CIL had agreed to give non-executive workers a 19% raise. This, along with higher sales, means that Ebitda will only go down by 2% YoY in FY24E to Rs 40,000 crore, which is still 60% higher than the average of Rs 25,100 crore for FY18-22.

For FY24 and FY25, Nuvama expects to pay a dividend of Rs 20 per share, for a total dividend yield of 8%. It said that the price of the stock is low and changed its goal price for Coal India from Rs 362 to Rs 365.

Coal India sells 10% of its volumes through e-auction, where the prices are set by the bidding. According to Motilal Oswal, Coal India’s total volume in FY24 should be between 65 and 70 mt.

“We have added 2% to our revenue predictions to account for the extra money the price hike will bring in. In April and May, the premiums for e-auctions dropped by a lot, and the near-term picture for premiums is still not good. We have raised our estimates for Ebitda and PAT by 2.4% and 2.5%, respectively, to account for the price increase’s gain. However, the lower e-auction premiums would make up some of the difference. COAL trades at 3.9 times FY24E EV/Ebitda. We are still recommending that people BUY the stock, but we have changed the price goal to Rs 290 (5x EV/EBITDA). Motilal Oswal said, “We think Coal is in a good position to take advantage of the growth opportunity ahead.”

Kotak Institutional Equities said that limiting price changes to high-grade coal could make up for life-high e-auction prices and keep power utilities’ fuel bills down, which are already high because of expensive imports.

Kotak said that lower auction prices, higher-than-expected staff costs, and now a lower-than-expected change in FSA prices are all bad news for Coal India. Street is hopeful about the change in FSA prices, which have only been changed for high-grade coal prices (30% of sales) so far. The brokerage’s goal for the stock is Rs 240 per share.



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