Coal India shares downgraded by CLSA on these major pressure points; Details here

Brokerage firm CLSA has downgraded shares of India's largest mining company, Coal India Ltd., in its latest note on Friday, May 8, and also cut its price target.

CLSA has downgraded Coal India to "underperform" from its earlier rating of "hold" and also cut its price target to ₹385 from ₹390 earlier. The revised price target implies a downside potential of 17% from Thursday's closing levels.

Coal India, along with most other energy-linked stocks, has rallied significantly recently, citing the energy security theme. However, CLSA believes that the company is unlikely to be a big beneficiary of this theme.

The brokerage also sees risks to Coal india's medium-term growth prospects given the move towards renewable power and a rise in captive coal production. "With commercial consumers like Vedanta, Jindal Steel, Hindalco opting for captive coal security, this is likely to be an overhang for both FSA realisations and e-auction demand," CLSA wrote in its note.

As a result, CLSA has cut Coal India's financial year 2027 and 2028 estimates for Coal India's Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) by 2% and 9% respectively, to factor in a muted margin outlook.

Coal India has also indicated a 26% and 54% increase in explosives and industrial diesel prices due to the West Asia conflict, which according to CLSA, it is unlikely to pass on to protect the end consumer. According to CLSA, this could increase costs by ₹3,000 crore, or 8% of the company's EBITDA for financial year 2026, which could weigh on its profitability.

The offtake growth guidance of 10% year-on-year is also tough to achieve for Coal India, according to CLSA, given the change in power and fuel sourcing mix.

Additionally, any potential stake sale from the government could also act as an overhang on the stock.

CNBC-TV18 had reported on Thursday that the government is looking to sell between 3% to 4% stake in Coal India through an Offer For Sale, through which it could fetch up to ₹10,000 crore.

Morgan Stanley also believes that renewed discussions on any Offer For Sale in Coal India, could put pressure on the stock.

CLSA sees risk-reward unfavourable post the recent outperformance of the stock. A key risk to its bearish thesis is the faster-than-expected ramp-up of the non-Coal business.

26 analysts have coverage on Coal India, of which 14 have a "buy" rating, five say "hold" and seven have a "sell" recommendation on the stock.

Shares of Coal India ended 0.9% lower on Thursday at ₹465.95. The stock is up 17% so far this year.