Parag Parikh Mutual Fund invests in undervalued Coal India

Parag Parikh Mutual Fund has recently invested in Coal India, sparking discussions among investors. Over the past decade, Coal India has traded with a low price-to-earnings (P/E) ratio of around 8, and now it appears undervalued. However, this raises the question: is it a wise investment? Parag Parikh Financial Advisory Services is well-regarded in the investment community. Their investment in Coal India has caught attention due to the company's solid dividend yield of 6.4% and a healthy financial status with minimal debt. Additionally, Coal India has consistently reported profits exceeding 30,000 crore, a significant improvement from previous years. To understand Coal India’s situation better, we can compare it to another company, referred to here as 'Company H.' Company H is also a market leader, has no debt, and pays high dividends. However, Coal India has shown better returns on equity over the past five to ten years, and its profits have almost doubled recently. Despite these positives, Company H, which is Hindustan Unilever, has a P/E multiple over seven times higher than that of Coal India. Investors are willing to pay much more for Company H, expecting it to perform better in the future. This is largely due to the perceived stability and growth prospects of Hindustan Unilever compared to Coal India, especially as India moves toward renewable energy sources. Some experts argue that concerns about Coal India's future may be overstated. Coal is expected to remain a key energy source in India for the foreseeable future, with government plans to increase thermal power capacity significantly. This could help Coal India maintain or even grow its profit levels. Coal India’s current valuation metrics suggest it may not be a bad deal. With a P/E ratio of about 7 and a price-to-book-value multiple of 2.5, it appears relatively cheap compared to historical values. However, investors must consider whether Coal India is a long-term hold or a short-term trade. Ultimately, investing is about balancing risk and reward. Each investor must weigh these factors carefully before deciding whether to invest in Coal India now or wait for a potential drop in price.