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Coal production remained subdued in May-26, with CIL reporting output of 56.1mt (-11.7% YoY) amid deliberate production moderation due to comfortable inventory levels. Offtake rose 2.3% YoY to 66.7mt, indicating healthy demand. Thermal power generation rebounded strongly, rising 8.3% YoY in May-26, supported by heatwave-led demand, with peak power demand reaching 271GW and power consumption growing 11.6% YoY. Despite nearterm headwinds from higher renewable penetration and softer domestic coal production, we expect CIL to accelerate output through the rest of FY27, supported by seasonal demand, sufficient production headroom, and potential support from tighter global coal supply. We forecast production to increase to 815/850mt in FY27/FY28 (~6% CAGR) and maintain ADD with TP of Rs475.

Sufficient inventory led to a decline in production

CIL reported May production of 56.1mt (flat MoM and down 11.7% YoY), with the YoY decline led by lower output from MCL and NCL. However, the decline was largely a deliberate decision, given the sufficient inventory level. Based on seasonality, this implies an annualized production run-rate of ~740mt for FY27E (-3.7% YoY). Offtake stood at 66.7mt (up 5.5% MoM and 2.3% YoY), driven by strong dispatches from CCL and MCL, translating to an estimated ~771mt for FY27 (up 3.7% 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 the remainder of FY27.

India’s power demand scenario

Electricity generation from thermal sources in India rose 8.3% YoY in May-26 and 4.7% YoY in FY27 YTD, marking a strong recovery after flat growth in FY26 YTD and breaking the recent trend of deceleration in thermal power demand. This was further supported by robust underlying demand in May, with peak power demand touching 271GW on 21- May-26 and power consumption rising 11.6% YoY in May-26, as heatwave conditions across the country boosted usage. This growth was supported by the onset of summer and potential El Niño conditions, reinforcing our FY27E demand outlook. On the supply side, coal production declined 9% YoY in Apr-26, largely due to a sharp 10% drop in CIL output and a 19% decline in SCCL production. Meanwhile, captive power plant (CPP) output also declined 5% YoY, with its share in total coal demand increasing 94bps YoY to 19.1%. The rising share of renewables in the power mix (26.3% in Apr-26 vs 23.7% in Apr-25) continues to exert incremental pressure on CIL

Heatwave across regions should drive volume growth; maintain ADD

Despite softer coal production in May-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 potential reduction in Indonesia’s coal production target. We maintain ADD and TP of Rs475.

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