Target: ₹290
CMP: ₹386.75
Coal India Ltd (CIL) trades at cheap valuation multiples of about 5x/9x/1x FY27E fwd EV/EBITDA, P/E and EV/CE, respectively. These headline multiples make the stock look attractive, but we believe it is a Value Trap as these metrics conceal more than they reveal. Discounted pricing and unfavourable sales mix make CIL’s core business model questionable and makes us believe that its motto is not profit driven. Over FY26E-29E, CIL will spend a whopping ₹80,000 crore (about 53 per cent of OCF on capex), yet EBIT growth will be negative over FY24-29E.
CIL has a net cash balance of ₹32,800 crore (about 14 per cent of current market cap) as of FY25 end. However, there are long term provisions to the tune of ₹74,500 crore which need to be set off against the cash balance, in our view. CIL mined product’s Gross Calorific Value (GCV) has been on a downward trend over the last 10 years. CIL is a cash cow where all free cash flows post capex are paid out as dividends.
Our Base Case Scenario TP (DDM-based) is ₹290/sh. Our Upside Scenario (10-15 per cent probability event in our view) uses a mix of multiples and DDM for a value of ₹500/sh, while our Downside Scenario (10-15 per cent probability event in our view) value is ₹225/sh (DDM-based).
A reversal in government policy to substantially align coal prices with a profit maximisation motive is a risk to our Sell call.
Published on July 21, 2025
