Buy Coal India Ltd for the Target Rs. 440 by Motilal Oswal Financial Services Ltd
Big miss on earnings due to high costs; cutting estimates
* Revenue for 2QFY26 came at INR302b (-2% YoY and -16% QoQ), against our estimate of INR299b. The decline was mainly led by muted volume.
* Adj. EBITDA (excluding OBR exp) stood at INR58.5b (-18% YoY and -48% QoQ), against our estimate of INR85b during the quarter. EBITDA was impacted primarily by higher other costs (+22% YoY).
* EBITDA/t declined to INR357 (-16% YoY and -39% QoQ) vs our estimate of INR518/t.
* APAT came in at INR43.5b (-31% YoY and -50% QoQ), against our estimate of INR63b during the quarter.
* Production for 2QFY26 stood at 145.8mt (-4 YoY and -21% QoQ) and offtake stood at 164mt (-2% YoY and -14% QoQ), driven by prolonged monsoon.
* FSA revenue stood at INR218b (flat YoY and -15% QoQ), with a volume of 147.5mt (flat YoY and -11% QoQ) and an ASP of INR1,470/t (flat YoY and -5% QoQ) during the quarter.
* E-auction revenue came in at INR35b (-6% YoY and -29% QoQ) with volumes of 15.3mt (+1% YoY and -28% QoQ) and realizations of INR2,292/t (-7% YoY and -2% QoQ), translating into a premium of 55% during the quarter (vs. 69% in 2QFY25).
* In 1HFY26, the production and offtake volume stood at 329mt (-4% YoY) and 357mt (-3% YoY). Revenue and EBITDA declined 2% (INR660b) and 9% YoY (INR170b), respectively, in 1HFY26. Similarly, adjusted PAT declined 24% YoY to INR131b in 1HFY26.
* The company declared a second interim dividend of INR10.25/share in 2QFY26.
Valuation and view
* Coal India (COAL) delivered muted performance, mainly due to weak volumes, where e-auction volumes accounted for ~10% of total volumes and premium stood at 55% in 2QFY26.
* For FY26, we trimmed our Revenue/EBITDA/APAT estimates by 4%/8%/6%, respectively, as we incorporate the muted volumes of 1HFY26 and subdued near-term outlook. We expect e-auction volume and premium to recover in 2HFY26, supported by demand recovery from the non-FSA sector.
* We expect COAL to clock a 3% volume CAGR over FY25-28. This is expected to translate into a CAGR of 5% in revenue and 7% in EBITDA. The company’s focus on increasing coal-washer capacity will improve its market share in domestic coking/non-coking coal. Further, management remains focused on expanding its coal mining operations, which will be funded through internal accruals. COAL may, however, consider raising debt to undertake strategic diversification projects such as RE facilities and coal gasification.
* At CMP, the stock is trading at 4.2x EV/EBITDA and 1.8x P/BV on FY27E. We reiterate our BUY rating with a TP of INR440 (premised on 4.5x EV/EBITDA on Sep’27 estimate).
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