Coal India Ltd, with its latest stock price at ₹440, displays strong investment characteristics including a high operating profit margin (OPM) of 25.8%, a low debt to equity ratio of 0.09, and no pledged percentage of promoter shares. The company stands as a Maharatna entity under the Ministry of Coal, reflecting its significant role and stability in the sector. With a consistent or increasing promoter holding at 63.1%, and a high dividend yield of 5.49%, Coal India presents a robust financial health and profitability with a high return on equity (ROE) of 56.0% and a profit growth of 31.9% CAGR over the last 5 years. The difference between the stock’s current market price (CMP) and its book value is modest, suggesting the stock is reasonably valued. Given these positive indicators, especially its low debt, constant or increasing promoter holding, and attractive dividend yield, a buy recommendation is warranted. However, investors should remain vigilant to any shifts in these critical parameters, as they significantly influence the investment outlook.
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TLDR of the article:
Company Data:
- Market Cap: ₹2,70,975 Cr.
- Current Price: ₹440
- Stock P/E: 9.28
- Book Value: ₹113
- Dividend Yield: 5.49%
- ROCE: 70.5%
- ROE: 56.0%
- OPM: 25.8%
- Debt to Equity: 0.09
- Promoter Holding: 63.1%
- Pledged Percentage: 0.00%
Key Highlights:
- Company is almost debt-free with a low debt-to-equity ratio of 0.09
- Consistent promoter holding at 63.1% with no pledged shares
- High operating profit margin (OPM) of 25.8%
- Low P/E ratio of 9.28 compared to the industry median of 16.92
- Impressive return on equity (ROE) of 56% and 3-year average ROE of 46.8%
- Attractive dividend yield of 5.49%
Recommendation: Based on the provided data and parameters, Coal India Ltd receives a BUY recommendation due to its low debt-to-equity ratio, consistent promoter holding with no pledged shares, high OPM, and lower P/E ratio compared to the industry median. The company also offers an attractive dividend yield and has a strong ROE track record.
Company Introduction, Profile
Coal India Ltd, a Maharatna company under the Ministry of Coal, Government of India, is the country’s leading coal mining and production company. Incorporated in 1973 as Coal Mines Authority Ltd, the company has its headquarters in Kolkata, West Bengal. With a market cap of ₹2,70,975 crore and a current stock price of ₹440, Coal India Ltd is a major player in the mining and mineral products sector. The company’s primary consumers are the power and steel sectors, with additional clients in cement, fertilizers, and brick kilns. Coal India Ltd boasts an impressive operating profit margin (OPM) of 25.8%, a return on capital employed (ROCE) of 70.5%, and a return on equity (ROE) of 56%. The company’s sales for the latest quarter stand at ₹36,154 crore, with a 5-year sales growth of 10.2% and a 5-year profit variance of 31.9%.
Should We Buy, Sell or Hold This Stock and Why?
Based on the provided data, Coal India Ltd appears to be a strong buy recommendation. The company has a low debt-to-equity ratio of 0.09, indicating a nearly debt-free status. The promoter holding has remained consistent at 63.1%, with no pledged shares, demonstrating the promoters’ confidence in the company. Coal India Ltd has an attractive dividend yield of 5.49% and a lower P/E ratio of 9.28 compared to the industry median of 16.92. The company’s 3-year average ROE of 46.8% and the current ROE of 56% showcase its ability to generate profits for shareholders. Additionally, the company has shown significant profit growth, with a 5-year CAGR of 31.9%. However, investors should note the relatively slower sales growth of 10.2% over the past five years. Overall, the strong financial metrics and consistent promoter holding make Coal India Ltd an attractive buy opportunity for long-term investors.
Vital Company Ratios:
For those new to investing, here are some key ratios to understand Coal India Ltd’s financial health:
- Debt-to-Equity Ratio (0.09): This low ratio indicates that the company has very little debt compared to its equity, which is a positive sign of financial stability.
- Operating Profit Margin (25.8%): This ratio shows that the company retains 25.8% of its revenue as profit after deducting operating expenses, which is a healthy margin.
- Return on Equity (56%): This high ROE suggests that the company generates significant profits for its shareholders.
- Dividend Yield (5.49%): Coal India Ltd offers a strong dividend yield, meaning that investors can expect a steady income stream.
- P/E Ratio (9.28): The company’s P/E ratio is lower than the industry median (16.92), indicating that the stock may be undervalued compared to its peers.
These ratios paint a picture of a financially strong company with attractive returns for investors.
Data from each year or quarter:
- Promoter holding: Consistent at 63.1% as of Dec 2023
- FII/DII holding: FII holding at 8.59%, DII holding at 23.06% as of Dec 2023
- Sales trend: Quarterly sales at ₹36,154 crore in Dec 2023, showing a 2.8% QoQ growth
- Profit trend: Net profit at ₹9,094 crore in Dec 2023, a 17.49% QoQ growth
- Debt trend: Total debt at ₹6,313 crore as of Sep 2023
- Margin trend: OPM at 31% in Dec 2023, improving from 25% in Sep 2023
- Company PE: 9.28, lower than the industry median of 16.92
- Industry PE: 16.6
- Gap between intrinsic stock value (₹786.26) and current market price (₹440): ₹346.26
- Market cap: ₹2,70,975 crore
- Cash in hand: Not explicitly mentioned Dividend payout: 53% in Mar 2023
Competing companies and their performance
Coal India Ltd’s main competitors in the Mining and Mineral products sector include Vedanta, NMDC, Lloyds Metals, KIOCL, G M D C, and MOIL. Among these, Coal India Ltd has the highest market cap of ₹2,70,975 crore, followed by Vedanta at ₹1,09,081 crore. Coal India Ltd also has the highest ROCE at 70.49%, while the industry median stands at 18.84%. The company’s P/E ratio of 9.28 is lower than the industry median of 16.92, indicating potential undervaluation. Coal India Ltd’s dividend yield of 5.49% is significantly higher than the industry median of 0.44%. In terms of quarterly performance, Coal India Ltd reported a net profit of ₹9,093.69 crore, the highest among its peers, with a 17.49% QoQ growth. The company’s quarterly sales stood at ₹36,153.97 crore, second only to Vedanta. Overall, Coal India Ltd appears to be outperforming its competitors on most financial parameters.
Recommendation: Based on the provided data and parameters, Coal India Ltd receives a BUY recommendation. The company has a low debt-to-equity ratio of 0.09, a consistent promoter holding of 63.1%, and no pledged holdings. The company’s OPM has been improving, and its P/E ratio of 9.28 is lower than the industry median. Additionally, Coal India Ltd offers an attractive dividend yield of 5.49%. The company’s strong financial performance, coupled with its market leadership position, makes it an appealing investment opportunity.
Is This Stock Overvalued or Undervalued?
Based on the provided data, Coal India Ltd appears to be undervalued. The intrinsic value of the stock is estimated at ₹786.26, while the current market price is ₹440, indicating a significant gap of ₹346.26. Moreover, the company’s P/E ratio of 9.28 is lower than the industry median of 16.92, further suggesting that the stock is undervalued compared to its peers.
Should We Buy This Stock and Why?
Yes, Coal India Ltd seems to be a good buy based on the following data:
- Low debt-to-equity ratio of 0.09, indicating a strong financial position
- Consistent promoter holding at 63.1% with no pledged shares, showing management’s confidence
- Improving operating profit margin (OPM), currently at 25.8%
- Lower P/E ratio of 9.28 compared to the industry median of 16.92
- Attractive dividend yield of 5.49%
- Strong return on equity (ROE) of 56% and a 3-year average ROE of 46.8%
These factors suggest that Coal India Ltd is a financially stable company with good growth prospects, making it an attractive investment opportunity.
How Is the Industry of This Company Growing?
The data provided does not give a clear indication of the industry growth. However, we can infer some insights based on Coal India Ltd’s performance:
- The company’s sales growth over the past five years has been 10.2%, which is relatively low compared to its profit growth of 31.9% CAGR over the same period.
- Coal India Ltd has a higher ROCE (70.49%) compared to the industry median (18.84%), suggesting that it is efficiently utilizing its capital to generate profits.
- The company’s market leadership position, with a market cap of ₹2,70,975 crore, indicates its strong presence in the mining and mineral products sector.
To better assess the industry growth, additional information on the overall mining and mineral products sector, as well as the performance of Coal India Ltd’s peers, would be required.
Recommendation: Given the low debt-to-equity ratio, consistent promoter holding, improving OPM, lower P/E ratio, and attractive dividend yield, Coal India Ltd receives a BUY recommendation. The company’s strong financial performance and market leadership position make it an appealing investment opportunity.
Risk Factors related to Coal India Ltd and the coal mining industry:
Business/Commercial Risks:
- Competition from alternative energy sources like renewable energy, which may reduce the demand for coal in the long run.
- Fluctuations in coal prices due to global market conditions and supply-demand dynamics.
- Dependence on the power and steel sectors, which are the major consumers of coal. Any slowdown in these sectors may impact the company’s sales.
Regulatory Changes:
- Stricter environmental regulations on coal mining and usage, which may increase compliance costs and affect the company’s operations.
- Changes in government policies related to coal mining licenses, royalties, and taxes.
Key Risks Associated and Potential Risks of the Industry:
- Environmental concerns and the global shift towards cleaner energy sources, which may impact the long-term sustainability of the coal industry.
- Operational risks such as mining accidents, labor strikes, and natural disasters that can disrupt production and affect the company’s financial performance.
- Geopolitical risks, such as changes in international trade policies and relationships, which may impact the global demand and supply of coal.
Risks to Consider Before Investing:
- The company’s relatively low sales growth of 10.2% over the past five years, which may indicate a slowdown in the coal industry.
- The potential impact of the global transition towards cleaner energy sources on the long-term prospects of the coal industry and the company.
Management Quality Assessment:
Based on the information provided, there is no mention of any criminal cases against the promoters or management of Coal India Ltd. However, as an AI language model, I do not have access to a comprehensive database or the internet to verify this information independently. It is always advisable for investors to conduct thorough research on the management’s background and track record before making investment decisions.
Recommendation: Given the low debt-to-equity ratio, consistent promoter holding, improving OPM, lower P/E ratio, and attractive dividend yield, Coal India Ltd receives a BUY recommendation. However, investors should also consider the potential long-term risks associated with the coal industry, such as the global shift towards cleaner energy sources and the impact of stricter environmental regulations. It is essential to monitor these risk factors and assess their potential impact on the company’s future performance.
How This Company Is Going to Perform Long Term like 6-10 years
Predicting Coal India Ltd’s long-term performance over the next 6-10 years is challenging due to the global shift towards cleaner energy sources. However, the company’s strong financial position, as evidenced by its low debt-to-equity ratio of 0.09, consistent promoter holding of 63.1%, and high return on equity (ROE) of 56%, may help it navigate the changing industry landscape. The company’s 5-year profit growth of 31.9% CAGR and its ability to maintain a healthy dividend payout of 63.7% demonstrate its financial resilience. However, the relatively low sales growth of 10.2% over the past five years might be a concern for long-term growth prospects.
How This Company Is Going to Perform Short Term 2-5 months
In the short term of 2-5 months, Coal India Ltd’s performance may remain stable, given its strong quarterly results. The company reported a net profit of ₹9,093.69 crore in the latest quarter, with a 17.49% QoQ growth. The operating profit margin (OPM) has improved from 25% in Sep 2023 to 31% in Dec 2023, indicating better operational efficiency. The company’s low P/E ratio of 9.28 compared to the industry median of 16.92 suggests that the stock may be undervalued, which could attract investors in the short term.
How This Company Is Going to Perform medium Term 2-6 years
Over the medium term of 2-6 years, Coal India Ltd’s performance may be influenced by the balance between the growing energy demand in India and the global shift towards cleaner energy sources. The company’s strong financial metrics, such as its high ROCE of 70.5%, low debt-to-equity ratio, and consistent promoter holding, may help it maintain its market leadership position. However, the company’s sales growth of 10.2% over the past five years and the potential impact of stricter environmental regulations on the coal industry may pose challenges to its medium-term growth. The company’s ability to adapt to the changing industry dynamics and diversify its business will be crucial for its medium-term performance.
Recommendation: Based on the provided data and parameters, Coal India Ltd receives a BUY recommendation for the short to medium term. The company’s low debt-to-equity ratio, consistent promoter holding, improving OPM, and lower P/E ratio compared to the industry median make it an attractive investment option. However, investors should monitor the company’s long-term performance closely, given the potential risks associated with the global shift towards cleaner energy sources and the impact of environmental regulations on the coal industry.