HSBC ups Coal India rating to ‘buy’; increases share price target to Rs 490 from Rs 425.50

MUMBAI: HSBC Global Research has upgraded its rating of Coal India to ‘buy’ from ‘hold’ and increased its share price target to Rs 490 from Rs 425.50 earlier, the brokerage said in a report Monday.

At 15:20 IST on Monday, shares of Coal India were trading at Rs 420, up 0.6 per cent from previous close.

“We increase our target price for the company to Rs 490 (from Rs 372) as we increase our earnings forecast for the company. Our target price implies upside potential of 15.2 per cent from the current market price. We upgrade the stock to Buy from Hold,” HSBC said.

The brokerage said Coal India’s roadmap and plans for building railway lines are huge earnings drivers as demand for coal builds up. “Coal India has come out with detailed roadmap to achieving its ambitious target of 1 billion ton production by FY20; however, we are factoring in only 750 million ton by FY20 considering the complexities involved in reaching the target. In our estimates, 75 per cent of the total increase comes from 12 select mines in three subsidiaries which have all clearances,” the report said.

Coal India’s demand trajectory is strong enough to match production growth and the company’s margins are likely to rise slowly as the company rationalizes staffing. Returns on new investments by the company in railways could offer upside to the estimates, HSBC said.