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CIL's Jun-26 production declined 1% YoY to 57mt, reflecting comfortable inventory (14 days vs long-term average of 13). However, inventories have already declined 22% YTD, and we expect production to improve from 2HFY27 as seasonal disruptions recede. We forecast output to increase from 768mt in FY26 to 815/850mt in FY27/28 (~6% CAGR), supported by 6-7% power demand growth, stronger thermal generation and electricity consumption, and tighter seaborne coal markets following Indonesia's production target cut to 600mt for CY26 (790mt in CY25). While rising renewable penetration remains a structural headwind over the long term, we believe near-term demand and supply dynamics remain supportive. We maintain ADD with TP of Rs475

Sufficient inventory level leads to decline in production CIL reported June production of 57.4mt (up 2.3% MoM and down ~1% YoY), with the YoY decline caused by lower output from MCL and BCCL. The decline was imminent, given the sufficient number of inventory level days at 14 during Jun-26 vs long-term average inventory days at 13.2. However, notably, the number of inventory days is down ~22% YTD and production should start improving from 2HFY27 onward, post-seasonality impact wearing off. Based on seasonality, this implies annualized production run-rate of 754mt for FY27E (-1.9% YoY). Offtake stood at 65.8mt (down 1.3% MoM and 7.5% YoY), driven by strong dispatches from CCL and ECL, translating into an estimated 783mt for FY27 (up 5.3% YoY) vs 744mt in FY26. Despite the soft start, we expect CIL to ramp up production to 815/850mt in FY27/28 (~6% CAGR), with sufficient headroom and seasonality-led tailwinds supporting a catch-up over remaining-FY27.

India’s power demand scenario

Electricity generation from thermal sources in India rebounded strongly, rising 12.8% YoY in Jun-26 and 7.5% YoY in FY27 YTD, reversing the 8.1% YoY decline in FY26 YTD and breaking the recent slowdown in thermal power demand. The recovery was supported by robust electricity demand, with peak power demand reaching a record 265GW on 17-Jun-26 (+9% YoY) and power consumption increasing 11.6% YoY amid widespread heatwave conditions. The seasonal demand pickup and potential El Niño impact reinforce our constructive FY27 demand outlook. On the supply front, domestic coal production declined 10% YoY in May-26, impacted by a 12% fall in CIL's output and a 23% decline in SCCL production. Meanwhile, CPP generation increased 3% YoY, raising its share in total coal demand by 266bps YoY to 22.4%. However, the continued rise in renewables (26.7% of the power mix vs 25.0% a year ago) remains a structural headwind to incremental thermal coal demand.

Production recovery to gather pace; maintain ADD

Despite softer coal production in Jun-26, we expect CIL to ramp up output, from 768mt in FY26 to 815/850mt in FY27/28 (implying ~6% CAGR), broadly in line with projected 6-7% power demand growth, with additional support from a reduction in Indonesia’s coal production target to 600mt in CY26 vs 790mt in CY25. We maintain ADD and TP of Rs475.

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