Analysts are optimistic on the stock's prospects.
“We see CIL’s stock at a vantage point driven by significant traction in both its key drivers – volume and e-auction premium," said analysts at Edelweiss Securities in a report on 18 July. The brokerage firm has raised target price to ₹250 from ₹196 apiece. Currently, the stock is trading at almost ₹200 a share on the National Stock Exchange.
CIL supplies coal based on fuel supply agreements and through e-auction. Coal sold at e-auctions is benchmarked to global prices.
Demand has maintained the strong momentum seen in the June quarter (Q1FY23), evident from Edelweiss channel checks which indicate that production and sales volume up to 13 July have remained robust despite having declined month-on-month due to seasonal factors. According to the Edelweiss report, production was at 1.55 million tonne a day (versus 1.40 million tonne a day in July 2021) during the period, while sales touched 1.81 million tonne a day (versus 1.69 million tonne a day).
In Q1, CIL’s production volume surged 29% year-on-year to 159.8 million tonne, while dispatches rose 11% to 177.6 million tonne. Of this, CIL supplied 153.2 million tonne to the power sector in the quarter as demand from power plants increased. This represented growth of nearly 20% year-on-year. The improvement in rake availability for power plants also supported offtake.
Another key driver, the premium to notified price in e-auction bookings jumped 400% in Q1FY23 compared with 260% in Q4FY22, according to Edelweiss. They expect absolute e-auction realisations to increase significantly as recent bookings have been made at a much higher price than in the past.
Meanwhile, the company’s capital expenditure increased 65% in Q1 to ₹3,034 crore. This was due to land acquisition and bolstering transport infrastructure in the coalfields which would eventually help accelerate production.
Given all these factors, the outlook for Coal India shares is bright but environmental, social and governance concerns may weigh on investor sentiment in the long run. Further, a potential drop in global coal prices poses a risk as e-auction realisations could take a hit.
