Jefferies raises Coal India target price, says valuation reasonable

The brokerage has lifted its FY26–28 earnings estimates by 1–4%, primarily due to higher e-auction premiums, even as it builds in only a modest volume recovery. “After 21% EPS decline over FY24–26E, we expect COAL’s earnings trajectory to improve with 9% CAGR over FY26–28E,” Jefferies said, highlighting a revival in profitability as power demand and realisations recover.It now models dispatch volumes to grow at 5% CAGR over FY26–28, with total dispatches rising from 735 million tonnes in FY26E to 810 million tonnes in FY28E.

Jefferies expects Coal India to be a key beneficiary of a rebound in electricity consumption, supported by forecasts of intense summer conditions and a higher probability of weak monsoons. The firm noted that subdued power demand had weighed on dispatches in recent periods, with volumes up just 1% year-on-year in FY25 and down 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 rains, should boost COAL’s volumes,” the report noted.

On pricing, the brokerage flagged higher international coal prices as a near-term positive for domestic e-auction realisations. Global thermal coal benchmarks have risen about 16% over the past week, and Jefferies is building in an e-auction premium of 63–69% over linkage coal for 4QFY26–FY28 versus a long-term average of 76%. “Higher global prices should lift domestic e-auction premiums too,” it said, while noting that e-auction volumes account for around 10% of Coal India’s total dispatches.

Despite rising captive coal production in the country, Jefferies believes Coal India’s competitive position remains intact, with the company holding roughly 60% share of India’s overall coal demand and about 75% of total coal production as of FY25. The report stresses that share gains for captive mines have largely come at the expense of imports, which still constitute 19% of demand and provide a “substitution buffer” as the government pushes to cut thermal coal imports.Valuation remains the core pillar of Jefferies’ constructive stance. The stock 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 about 6% on the brokerage’s estimates. “We find valuations reasonable with the stock trading at 9.3x FY27E PE (excl. stripping activity adjustments) in line with long-term average, and offering 6% dividend yield,” Jefferies said.Also read: IndiGo shares rise 2% as CEO Pieter Elbers quits after December flight chaos. What’s ahead?It also highlighted that Coal India is valued at a steep 36% discount to NTPC on a one-year forward price-to-earnings basis, compared with 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 rising to Rs 57 by FY28, up from Rs 48 in FY26, supported by EBITDA expansion from Rs 414 billion in FY26E to Rs 492 billion in FY28E.

In an upside scenario, the brokerage pegs the fair value at Rs 540, assuming slightly higher volume growth and 3–5% higher EBITDA versus the base case, while a downside scenario yields a target of Rs 370.

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Jefferies also underscored Coal India’s strong balance sheet and cash-generating profile, noting that the company remains in a net cash position and has rising cash per share despite generous dividends. Based on its estimates, the miner is expected to sustain annual dividends of Rs 26–28 per share over FY26–28, translating into payout ratios of 50–55%, reinforcing its appeal as a high-yield, cash-generative PSU play.

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