Coal India Ltd (CIL) stock was the top gainer in the Nifty 50 index on Monday, rising by 4.6%. The state-run coal producer’s robust volume performance in August amid sturdy power demand has boosted sentiments for its stock.
Last month CIL’s supplies to the power sector rose by 8% year-on-year, higher than the committed quantity. Analysts expect thermal power generation to improve to meet power demand, going ahead. This should boost thermal coal demand. . CIL has said that coal inventory at the company’s pitheads stood at a comfortable 45.3 million tonnes (MTs) as on 31 August and this would aid in meeting any sudden demand upsurge from the power sector.
In the coming months, power demand is estimated to remain elevated.
As such, the company’s volume is on a strong footing, which means it could benefit from operating leverage. It is also encouraging that CIL continued to pump higher quantities of coal to the non-power sector in August with supplies to them clocking a sharp 61% growth.
Overall, the production and sales volume in August rose by 13% and 15%, respectively, to 52.3 MTs and 59 MTs. ICICI Securities notes that CIL’s performance continued to remain strong for the fifth month in a row with production and sales volume sustaining at historical highs. “The traditional volume trough in Q2 is far lower in FY24 owing to increased rake availability,” said the ICICI Securities report dated 4 September.
As such, in FY24 so far, CIL’s production and sales volume are up by 11% and 8%, respectively. It is on track to meet its supply target of 780 million tonnes in FY24.
To be sure, the downtrend in e-auction realization is a cause of concern. In the June quarter, CIL’s e-auction realization was down by 14% year-on-year to ₹3,742 per tonne, marking the third consecutive quarter of drop in the measure.
Sure, an increase in demand may benefit realization. However, coal sold through the e-auction route tracks prices of international coal, which have so far remained subdued, though there are initial signs of pick up now.
“In July 2023, international coal prices have surged 20-25%, hence we expect progressive e-auction bookings to be done at higher prices,” points out ICICI Securities.
Taking Monday’s gains into account, CIL’s shares are down by nearly 6% from their 52-week highs of ₹263.40 apiece seen in November. Investor sentiments could get an additional boost if power demand strengthens ahead.
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Updated: 04 Sep 2023, 09:45 PM IST