Shares of Coal India have experienced a 14 percent decline from their 52-week high of Rs 263.30, which was reached in November of the previous year. This drop can be attributed to concerns regarding the government's recent equity dilution and a significant decrease in prices of e-auction. Despite this, Nuvama Institutional Equities believes that the downside to e-auction prices is limited since Coal India's prices still remain lower than global prices.

Nuvama stated, "During the period from FY18 to FY22, CIL achieved an average Ebitda of Rs 25,100 crore. Considering the increasing volume, partial FSA price hike, and cost peaking out, we anticipate that Coal India will continue to generate Ebitda significantly above average in the foreseeable future." The brokerage further believes that Coal India will continue to pay a dividend per share of at least Rs 20 each in FY24E and FY25, resulting in a substantial dividend yield of 9 percent.

The domestic brokerage also mentioned that negative factors such as increased employee costs and the government's offer for sale are now in the past, making the risk-reward ratio favourable for the stock.

While e-auction prices are often emphasized by investors to gauge Coal India's profitability, Nuvama highlighted the meaningful contribution of various charges (evacuation charges, surface transportation charges, forest transit fee, etc.) levied by Coal India, as well as profits from washed coal and other services.

"Our calculations indicate that 'others' constitute 37 percent of FY23 Ebitda (FY18-FY23 Ebitda CAGR of 19 percent) and this contribution is expected to increase to 45 percent in FY25E as profits from e-auctions decline," said Nuvama.

The average e-auction premium declined from 137 percent over FSA price in April to 55 percent in mid-June. Nuvama forecasts the average e-auction premium for the June quarter to be around 103 percent.

"We expect the premium to stabilize during the monsoon season before rebounding in H2FY24. We anticipate a 4-5 percent YoY increase in thermal power generation following the monsoon, which will lead to increased supply by Coal India to the power sector and consequently support higher e-auction prices. We have revised the average e-auction coal price to Rs 2,700 per tonne (previously Rs 3,000 per tonne) for FY24E and maintained it at Rs 2,035 per tonne for FY25E. A Rs 100 per tonne change in e-auction coal price results in a 2 percent change in FY24E Ebitda," the report stated.