Jefferies raises Coal India’s target price, says valuation is reasonable

The brokerage has raised its FY26-28 earnings estimate by 1-4%, mainly due to higher e-auction premiums, even as it sees only modest volume recovery. “After a 21% EPS decline in FY24-26E, we expect COAL’s earnings trajectory to improve with a CAGR of 9% in FY26-28E,” Jefferies said, highlighting revival in profitability as power demand and realization recover.

It now models dispatch volumes to grow at a CAGR of 5% in FY26-28, with total dispatch increasing from 735 million tonnes in FY26E to 810 million tonnes in FY28E.

Jefferies expects Coal India to be the main beneficiary of the recovery in electricity consumption, supported by forecasts of severe summer conditions and a high probability of a weak monsoon. The firm noted that recent periods have weighed on sub-optimal power dispatch, which declined by just 1% year-on-year in FY25 and 3% in 11MFY26, but it believes this trend should reverse as structural demand for power strengthens. “Recovery in power demand amid expectations of intense summer and weak rainfall should boost COAL volumes,” the report noted.

On pricing, brokerages flag higher international coal prices as a near-term positive for domestic e-auction realizations. Global thermal coal benchmarks have risen nearly 16% in the past week and Jefferies is building in an e-auction premium of 63-69% over linkage coal for 4QFY26-FY28, compared to a long-term average of 76%. “Higher global prices should also increase domestic e-auction premiums,” it said, adding that e-auction volumes account for about 10% of Coal India’s total dispatches.

Despite the increase in captive coal production in the country, Jefferies believes Coal India’s competitive position remains intact, with the company accounting for around 60% of India’s overall coal demand and around 75% of total coal production by FY25. The report emphasized that the share gains for captive mines have come largely at the expense of imports, which still account for 19% of demand and provide a “substitution buffer” as the government pushes to reduce thermal coal imports.

Evaluation is a key pillar of Jeffrey’s creative approach. It trades at 9.3 times FY27 adjusted earnings per share, in line with its long-term average multiple of 9.2 times and offers a dividend yield of around 6% on brokerage estimates. “We find the valuation reasonable at 9.3x FY27E PE (excluding stripping activity adjustments) while offering a long-term average and 6% dividend yield,” Jefferies said.

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It also highlights that Coal India is valued at a 36% discount to NTPC on a one-year forward price-to-earnings basis, compared to a historical discount of around 15%.

The new target price of Rs 485 is based on 9.5 times FY28 adjusted earnings per share and implies a potential total stock return of 17% including dividends. In its base case, Jefferies projects EPS by FY28 to grow to Rs. 57, which in FY26 is Rs. 48 in FY26E to Rs. 414 billion in FY28E to Rs. 492 billion supported by EBITDA expansion.

In the circumstances, the brokerage fair value is Rs. 540, which assumes slightly higher volume growth and 3-5% higher EBITDA compared to the base case, while the downside scenario is Rs. 370 target.

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Jefferies also highlighted Coal India’s strong balance sheet and cash-generation profile, noting that the company is in a net cash position and growing cash per share despite a generous dividend. Based on its estimates, the miner is expected to post revenue per share in FY26-28 of Rs. It is expected to sustain an annual dividend of 26-28, which translates to a payout ratio of 50-55%, further strengthening its appeal as a high-yield, cash-generative PSU play.

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