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COAL stock beaten down, why we are standing by our pick

Over the past 12-18 months, investors were enthused by a large-cap stock delivering volumes growth CAGR of 7-8%, alongside an improving demand outlook resulting in solid earnings momentum. We were also subscribed to this narrative for COAL; however, the growth air-pocket in recent months has weakened that thesis. We see the company missing its FY25 guidance by 35- 40mt (4.5%), and therefore, we reduce our estimate to 800mt. In addition, there has been news flow around progress on captive coal mines that could displace e-auction volumes. In our assessment, these captive mines could produce 26mt in FY28E, displacing a third of the e-auction offtake. All that said, we think the concerns are broadly in the price, whereas the medium-term demand growth outlook and project delivery catalysts are well-placed. We, therefore, reiterate our BUY rating, albeit at a reduced TP of Rs525.

Growth air-pocket could result in guidance miss; channel checks suggest growth acceleration in CY2026 Over the past 12-18 months, investors were enthused by a large-cap stock delivering volumes growth CAGR of 7-8%, alongside an improving demand outlook resulting in solid earnings momentum. We were also subscribed to this narrative for COAL; however, the growth air-pocket in recent months has weakened that thesis. Our channel checks suggest that much of the growth acceleration from the current projects would be delivered in CY2026, essentially delaying 1bntpa production target by a year, compared to our earlier estimates. We see the company missing its FY25 guidance by 35-40mt (4.5%), and therefore, we reduce our estimate to 800mt.

Displacement risk from progress in captive coal mines not as concerning Lately, there has been news flow around progress on captive coal mines by aluminium producers that could displace e-auction volumes. In our assessment, these captive mines could produce 26mt in FY28E, displacing a third of the e-auction offtake. However, with the growth in aggregate power demand, much of these lost volumes could be absorbed. In addition, not all of this captive capacity would come onstream at the same time.

Peak coal’ scenario suggests demand unlikely to peak until late-2030s Our ‘peak coal’ scenario analysis indicates India’s coal demand peak at 1.75bt (+32% increase from current level) in late-2030s. We note that China is still not past the ‘peak coal’ phase despite considerable progress in new energy, which gives us confidence that there is time for India’s demand to plateau, given it is behind the curve in energy transition.

Earnings revisions negative; reduce TP to Rs525 from Rs600 We lower our production/offtake volume assumptions to 800/790mt from 820/810mt and tweak cost estimates. The stock has de-rated on growth slowdown and e-auction displacement risk; however, we think the concerns are broadly in the price, whereas the medium-term demand growth outlook and project delivery catalysts are well-placed.

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