New Delhi: Morgan Stanley, a brokerage firm, has forecast a potential upside of up to 27% in shares of Coal India, a high dividend debt-free Maharatna PSU. The brokerage has issued an "overweight" rating and a target price of Rs 525 per share on state-owned Coal India Ltd. This target indicates a 27% upside from the company's stock's November 26 closing price of Rs 411.15 on the BSE.

According to Morgan Stanley, the strong outlook for power demand in India will support Coal India's volume and earnings growth in the coming years. The brokerage expects volume growth to be the key driver for the company's earnings in the medium term.

Morgan Stanley said in its report that Coal India's consolidated EBITDA could grow at a compound annual growth rate (CAGR) of 7% over the next three years. Apart from this, the company's operating cash flow will also remain strong, making it a good investment opportunity. The brokerage believes that Coal India's cash balance will remain strong, which shows it is expected to perform well in the coming years. According to Morgan Stanley, investing in Coal India at its current share level could be a good entry point.
 

Key Drivers of Volume Growth

Coal India's volumes and earnings are expected to grow due to rising power demand in India. Higher fuel supply agreement (FSA) prices andnormalizationn of e-auction premiums are expected to keep realizations stable for the company.
 

Key Risks for Coal India

However, the brokerage also mentioned some key risks, including a slowdown in power demand, the rapid pace of green energy transition, delay in capacity expansion of coal-based power plants, and falling international coal prices. These risks could impact further growth for Coal India.

Current status of the stock
 

Coal India shares rose 2.3% to a high of Rs 421.15 on November 27. However, the stock has fallen 22% in the last 3 months. The market cap of the company is now Rs 2.55 lakh crore. The current share price of Coal India Limited is ₹414, which is trading with a marginal gain of 0.58% on November 27, 2024. The market cap of the company is ₹2,55,137 crore, and its P/E ratio is 7.02, the dividend yield of Coal India is 6.20%. Also, the book value of the company is ₹156, and ROE (Return on Equity) is 52.0%. The company is almost debt free, with adebt-to-equityy ratio of 0.08.

The company's EBITDA is expected to grow at a compound annual growth rate (CAGR) of 7% over the next three years. Coal India's return on equity (ROE) has been 52.8% over the last three years. Apart from this, the company's return on capital employed (ROCE) is 63.6%. The company's safe debt ratio and strong dividend payout establish it as a good investment option. The shareholding pattern of 63.13% promoter holding, 9.16% FII holding, and 23.56% DII holding is also a positive sign for it.