Maharatna PSU Appears Well-Positioned to Capitalize on Growth Opportunity

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Maharatna PSU Appears Well-Positioned to Capitalize on Growth Opportunity
Credit: © Reuters.

By Malvika Gurung -- The state-owned coal miner Coal India (NS: COAL ) has received an upside call from the brokerage firm Motilal Oswal (NS: MOFS ) Financial Services, as the latter continues to hold its ‘Buy’ rating on the company despite a disappointing earnings show for the quarter ended March 31, 2023.

Motilal Oswal has reiterated its stance on the world’s largest coal producer, setting a target price of Rs 290/share, which is at a potential upside of 25.6% from the mega-cap stock’s last traded price of Rs 230.9 apiece.

Coal India has recently made some important changes. It has approved a price revision for its high-grade G2-G10 non-coking coal, starting May 31, 2023, and has raised the prices by 8%, which is expected to attract an additional revenue of Rs 27 billion in the current financial year 2023-24.

This is the first major price hike/revision taken by the company since 2018, and is put in place for offsetting nearly 50% of the higher wage bill, following the mutual agreement between Coal India and four central trade unions under NCWA-XI, stated Motilal Oswal.

Coal India aims to offset about half of the incremental wage bill. As a result, the domestic brokerage firm has raised Maharatna PSU’s revenue estimates by 2% for factoring in the additional income generated from the price hike.

However, the company’s e-auction premiums, which have been declining significantly in the past two months, are expected to remain weak in the near term.

Consequently, Motilal Oswal has revised Coal India’s EBITDA/APAT estimates by 2.4% and 2.5% upwards, respectively, considering the benefit of the price hike, while simultaneously accounting for the lower e-auction premiums.

The brokerage major sees Coal India well positioned to take advantage of future growth opportunities.

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