It now sees shipment volumes growing at a CAGR of 5% over FY26-28, with total shipments rising from 735 million tonnes in FY26E to 810 million tonnes in FY28E.
Jefferies expects Coal India to be a key beneficiary of the recovery in power consumption, supported by a forecast of severe summer conditions and a high probability of weak monsoons. The company noted that weak demand for electricity has weighed on the transition in recent times, increasing only 1% year-on-year in FY26 and down 3% in 11MFY26, but it believes that this trend should strengthen structural demand for electricity. “In anticipation of heavy and weak summer rains, recovery in electricity demand should increase coal volumes,” the report noted.
On the price front, the brokerage pointed to higher international coal prices as a near-term positive for domestic e-auction realities. Global thermal coal benchmarks rose around 16% in the past week, and Jefferies is making a 63-69% e-auction premium over linkage coal for 4QFY26-FY28, compared to a long-term average of 76%. “Higher international prices should also push up domestic e-auction premiums,” it said, while noting that e-auction volume accounts for about 10% of India’s total coal transactions.
Despite rising coal production in the country, Jefferies believes that Coal India’s competitive position remains, with the company accounting for around 60% of India’s total coal demand and around 75% of total coal production by FY25. The report stresses that dividend gains for closed mines have largely come at the expense of imports, which still account for 19% of demand and provide an “alternative buffer” as the government pushes to reduce thermal coal imports.
Value remains the main pillar of Jefferies’ constructive stance. The stock trades at 9.3 times FY27 adjusted earnings per share, in line with the long-term average multiple of 9.2 times, and suggests a dividend yield of 6% relative to brokerage estimates. “We see reasonable valuations with the stock trading at 9.3x FY27E PE (excluding performance adjustments), in line with long-term averages, and recommend a 6% dividend yield,” Jefferies said.
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It also highlighted that Coal India is valued at a steep 36% discount to NTPC on a year-ago price-to-earnings basis, compared to a historical discount of about 15%.
The new target price of Rs 485 is based on 9.5 times FY28 adjusted earnings per share and implies a potential cumulative return of 17% including dividends. In its base case, Jefferies projects EPS to rise to Rs 57 crore in FY28, up from Rs 48 crore in FY26, supported by an expansion in EBITDA to Rs 492 crore in FY28E from Rs 414 crore in FY26E.
In an upside scenario, the brokerage estimates fair value at Rs 540, with slightly higher volume growth and 3-5% higher EBITDA than the base case, while the downside scenario gets a target of Rs 370.
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Jefferies also highlighted Coal India’s strong balance sheet and cash generation profile, noting that the company remains in a net cash position and has increased cash per share despite generous profits. Based on these estimates, the miner is expected to maintain an annual dividend of Rs 26-28 per share during FY26-28, translating into a payout ratio of 50-55%, strengthening its appeal as a high-yield, cash-generating PSU play.
(Disclaimer: The suggestions, recommendations, views and opinions given by the experts are their own. They do not represent the views of The Economic Times)
