shares of Coal India Limited (CIL) has registered a growth of over 37 per cent in the last one year, ahead of the 2.8% growth seen in the Nifty 500 index, mainly due to strong domestic demand and strong realizations in e-auctions.
Analysts are optimistic about the stock’s prospects.
“We see CIL stock at a vantage point driven by significant traction across its key drivers – both volume and e-auction premium,” analysts at Edelweiss Securities said in a report on July 18. Brokerage firm raises target price from 250 196 each. Currently, the stock is trading at approx. 200 per share on the National Stock Exchange.
CIL supplies coal through fuel supply agreements and e-auctions. The coal sold in the e-auction is benchmarked at global prices.
Demand has maintained a strong momentum in the June quarter (Q1 FY23), which is evident from the Edelweiss channel investigation, which shows that production and sales volume Despite a month-on-month decline due to seasonal factors, it has remained firm till July 13. According to the Edelweiss report, production during the period stood at 1.55 million tonnes per day (1.40 million tonnes per day in July 2021), while sales were at 1.81 million tonnes per day (versus 1.69 million tonnes per day).
In Q1, CIL’s production volume grew 29% year-on-year to 159.8 million tonnes, while dispatch grew 11% to 177.6 million tonnes. Of this, CIL supplied 153.2 million tonnes to the power sector in the quarter due to increased demand from power plants. This represented an increase of about 20% year-over-year. Improvement in rake availability for power plants also supported the offtake.
Another key driver, according to Edelweiss, premium in e-auction bookings jumped 400% to notified price in Q1FY23 as against 260% in Q4FY22. They expect that there will be a significant increase in the completed e-auction receipts as the recent bookings have been made at much higher prices than before.
Meanwhile, the company’s capital expenditure grew 65% from Q1 to 3,034 crore. This was due to land acquisition and strengthening of transport infrastructure in the coal fields which would eventually help in accelerating 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. In addition, a possible fall in global coal prices poses a risk as e-auction receipts could be impacted.
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