Buy Coal India Ltd for the Target Rs.510 by Motilal Oswal Financial Services Ltd
In-line revenue; miss on EBITDA over higher costs
* Coal India’s (COAL) 1QFY27 revenue stood largely in line at INR462b (+8% YoY and flat QoQ), driven by higher volume offtake.
* Adj. EBITDA (excluding OBR expenses) stood at INR102b, declining 9% YoY and 17% QoQ, against our estimate of INR118b. EBITDA/t stood at INR517/t (-12% YoY and -16% QoQ), which was impacted by higher opex.
* The high opex during the quarter was mainly driven by 27% YoY input cost inflation (explosives, oil & lubricants, and other spare parts) and an 11% YoY rise in contractual expenses due to higher outsourcing. Other expenses also rose 14% YoY, driven by higher taxes in Jharkhand (mineral-bearing landcess) and elevated power expenses. APAT came in at INR88.5b (flat YoY and -18% QoQ) during the quarter, against our estimate of INR93b.
* Production in 1QFY27 stood at 170mt (-7% YoY and -29% QoQ), and sales volume stood at 198mt (+4% YoY and flat QoQ).
* The company commenced production at the ASGKCC Mine (Katras Area) under the MDO revenue-sharing model, with BCCL receiving 9% of the revenue. The mine contributed 12kt of coal production during the quarter.
* The e-auction premium for the quarter stood at 35%, with volumes of 26.5mt (13% contribution to total sales volume), compared to a 41% premium and volumes of 21mt (11% contribution to total sales volume) in 1QFY26.
* The company has constructed the Bhojudih Coal Washery at BCCL, with an annual capacity of 2MTPA, and commenced commercial operations in May’26. With this addition, BCCL's total coal washing capacity has increased to 17.35MTPA, including 1.7MTPA operated through TSL.
* The company commissioned ~200MW of the 300MW Solar Project at Khavda, Gujarat on May’26. It recorded revenue of INR56.8m from the sale of energy during the quarter.
* The Board has recommended an interim dividend of INR5.5/share in 1QFY27
Valuation and view
* COAL’s earnings were a miss due to cost pressures arising from the geopolitical situation. We expect some of these cost headwinds to stabilize in the coming quarters. Going forward, we expect COAL to post a 3-4% volume CAGR in FY26-28, while a higher share of e-auction volumes and improved premiums should support overall NSR and margins. This is expected to translate into a CAGR of 4% and 9% in revenue and EBITDA over FY26-28.
* The company’s focus on increasing coal-washer capacity will improve its market share in domestic coking/non-coking coal. Further, management continues to focus on expanding its coal mining operations, which will be funded through internal accruals. At CMP, the stock is trading at 4.9x on FY28E EV/EBITDA. We retain our estimates and reiterate our BUY rating with a TP of INR510, valuing the stock at 6x FY28E EV/EBITDA.
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