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Sustained production; Stable prices; Strengthening story

Sustained growth in production (83.91MT in May’24 vs. 76MT in May’23, +10% YoY) in response to surging energy/ peak power demand (12.5% YoY/13% YoY during 2MFY25) and commensurate increase in thermal power generation (+11.4% YoY Apr-May’24) is likely to enable Coal India (CIL) to achieve its production target of 838MT in FY25, +8.5% YoY. Taking cues from global markets and domestic demand, e-auction prices remains rangebound, INR 2300-2600/t during Nov’23-Apr’24 vs. INR 3431/t in Apr’23. Given the continued momentum in production, stable e-auction prices, new initiatives (3GW Solar/ 2260MW thermal power capacity addition, venturing into coal-to-chemicals business) and improving long-term visibility (‘King Coal’ is coming back), we maintain our BUY rating on the stock with a revised TP of INR 540.

* Volume growth is sustained: Coal production continues to see growth reaching 84MT in May’24 vs. 76MT in May’23 (+10% YoY). Coal dispatches in May’24, reached 90.84MT vs. 82.32MT in May’23 (+10.35% YoY). Extended summers, record-breaking heat waves, and soaring peak temperatures, particularly in northern India have led to increasing energy/ peak power demand (12.5% YoY/13% YoY during 2MFY25) which has resulted in commensurate increase in thermal power generation (+11.4% YoY Apr-May’24). Going forward, government’s target to add 93GW of new thermal capacity by FY32 bodes well for continued momentum in demand for coal (CIL aims for production of 838MT of production in FY25, +8.5% YoY).

* E-auction prices are stable post moderation: A global coal price correction is underway, triggered by an oversupply in China, the world's largest coal producer. Indonesian coal (5,900 GAR) prices plummeted from USD 221/t in Oct’21 to USD 88/t in Aug’23 and are now consolidating between USD 92-96/t. South Africa (6,000 GAR) followed, with prices dropping from USD 430/t in Mar’22 to USD 91/t in Feb’24, currently consolidating at USD104-107/t. Similarly, Australian prices fell from USD 447/t in Sept’22 to USD120/t in Feb’24, and are now consolidating in a USD135-140/t range. Taking cues from global markets and domestic demand, e-auction prices for Coal India remains range-bound, INR 2300-2600/t during Nov’23-Apr’24 vs. INR 3431/t in Apr’23.

* New initiatives are progressing: Company is working to set up 3GW Solar power capacity by FY26. The initial work for 1x660 MW at Amarkantak and 2x800 MW Sundargarh thermal power plants has started post approval. A JV, Bharat Coal Gasification and Chemicals Ltd (BCGCL) along with BHEL, is formed for coal-to-chemicals business.

* India to contain coal imports: Government plans to reduce coal imports (269MT in FY24, +11% YoY) and increase domestic production through faster operationalization of more mines (positive for Coal India) and increasing participation of private sector (downside risk to CIL). Ministry of Coal so far, has allocated/ auctioned 161 coal mines with peak rated capacity of 575 MT. Out of which 54 are into operation producing 147 MT in FY24.

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