The shares of Coal India have taken a knock as India moves towards achieving power surplus status and thermal power losing its competitiveness/importance to renewable energy.
Friday’s closing price of ₹244.25 on the NSE is below the stock’s 2010 issue price of ₹245. It hit a 52-week low of ₹243.10 on June 23.
The stock had made a spectacular debut then; however, in the last one year, it is down 21 per cent. Earlier also the company’s stock price has slipped below the issue price but this time the share price movement or trend is more pertinent as renewable energy has been gaining importance rapidly.
However, the company looks attractive to analysts at current levels. G Chokkalingam, founder, Equinomics Research and Advisory has a ‘buy’ recommendation on the stock with a target price of ₹310, which implies an upside potential of 26.5 per cent.
“The long-term outlook remains quite bearish due to the crash in the power tariffs of wind and solar energy sources as well as in oil prices. However, we believe that coal will not be replaced by alternate sources substantially in the short to medium terms as the existing thermal power stations would continue to lift coal from the company. We believe that the market has punished Coal India much more than what it deserves,” he said. Another analyst who did not wish to be named also echoed a similar view. He said that there is a long way to go before a major fall in demand for coal.
Though renewable energy is the future in the long term, the current stock levels provide comfort (15 times price to FY18 estimated earnings) and is suitable to short-term investors also who look to benefit from hefty dividends.
The Government of India, which held close to 79 per cent stake in the company as on March 31, has been prodding cash-rich public sector companies to pay special dividend to meet its fiscal deficit target.
Coal India held et cash of ₹31,743 crore as of March 31 or ₹51 per share. Even after setting aside the planned capex of around ₹15,000 crore for diversifying via setting up wind, solar and thermal power capacities, the company would still be left with enough cash.