Coal India shares may witness 32% potential upside: Morgan Stanley

Brokerage firm Morgan Stanley has initiated coverage on state-run Coal India Ltd. with an "overweight" rating and a price target of Rs 525. The price target implies a potential upside of 32% from Tuesday's closing levels. Morgan Stanley said that a strong power demand outlook for the nation will support Coal India's volumes and earnings growth over the next few years. It expects volumes to be the key earnings driver over the medium term.

The brokerage expects realizations to remain stable as higher fuel supply agreement (FSA) prices should be largely offset by normalization in e-auction premiums.

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The PSU Company’s consolidated Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) to grow at a Compounded Annual Growth Rate (CAGR) of 7% over the next three years, which is similar to the volume growth trajectory, according to Morgan Stanley. The state-run Coal miner has seen a 45% to 65% increase in consensus estimates for the financial year 2026-2027 over the last 12 months, despite some downgrades after its September quarter results.

"The stock has underperformed recently, also on the back of its September quarter results, and we think the current level is a good entry point," Morgan Stanley wrote in its note.

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 Morgan Stanley expects Coal India to maintain a strong cash balance, adjusted for high capex and dividend payouts and it is this strong cash flow that would lead to re-rating for Coal India over the next few years.

Out of the 25 analysts that have coverage on Coal India, 20 of them have a "buy" rating on the stock, three say "hold", while two of them have a "sell" rating. Shares of Coal India ended 1.4% lower on Tuesday at Rs 411.5. The stock is down 24% from its recent peak of Rs 543. The correction from its peak has trimmed its 2024 gains to just 8%.

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