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Coal India (CIL) reported consolidated net revenue INR 364bn (1.3% YoY, 6% JMFe); Adj. EBITDA (ex-OBR) came in at INR 115bn (3.4% YoY, 11% JMFe); Adj PAT stood at INR 81bn (1% YoY, 4% JMFe). Deviations from estimates are primarily due to restated Q1FY24 financials leading to increase in total expenses by INR 24bn and reduction in EBITDA by INR 30bn. E-auction realizations moderated 2% QoQ to INR 2441/t during 1QFY25. Given the continued momentum in power demand (1QFY25 peak power/energy demand, 12%/9%) and focus on thermal capacity additions, we estimate CIL to report 839/915MT of production during FY25E/26E. With consistent growth in production and stabilization in international coal prices, we reiterate our BUY rating on the stock with a TP of INR 601 (earlier INR 540).

* Operational highlights: Coal output increased by 8% YoY to 189 MT in 1QFY25. Coal supplies were up by 6% to 198.5 MT during 1QFY25 vs. 187 MT during 1QFY24. Blended realisation shrank by 6% YoY to INR 1,621/t largely on account of 35% YoY decline in e-auction realisation (INR 2,441/t). ‘King Coal’ is coming back

* A/c policy change: Existing Advance Stripping balance as at 31 Mar’22 was considered as Stripping Activity Assets under PPE, and thereafter such assets have been created to stripping activity adjustments and added to stripping activity asset forming part of PPE as at 30 Jun'24. The amount of stripping activity assets so is amortised over the remaining useful life of the respective mines and remain included under Depreciation/amortisation/ impairment expenses. Amount of stripping activity provision representing the credit balance of the stripping activity created till 31 Mar’22 is being carried forward and the same is reversed and credited in systematic manner and included under Stripping Activity Adjustments and accordingly, INR 56.03bn has been so adjusted, leaving a balance of INR 603bn as on 30 Jun’24 to be adjusted over the years in systematic manner as per the policy followed.

* Power demand remains strong: The peak/energy power demand recorded 12%/9.5% YoY growth YTD. The all-India peak demand touched 250 GW on 30th May’24 breaching the previous high of 243/215GW in FY24/FY23. Peak summer, record-breaking heat waves, and rising peak temperatures, particularly in northern India have led to increasing energy/ peak power demand which has resulted in commensurate increase in thermal power generation. 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). Increasing total energy shortage particularly during non-solar hours (7-8 GW in Apr’24) is leading to a renewed focus on coal-fired power generation (PLF, 76%/70% in 1QFY25/1QFY24). With 27.4 GW of thermal power capacity under construction, 18.8 GW of projects under various stages of tendering, and another 33 GW under planning, we expect the demand for coal for power generation to consistently grow over the next decade.

* Moderation in coal and E-auction prices: Global coal prices have undergone a significant correction triggered by oversupply in China (world’s leading coal producer). Indonesian coal (5,900 GAR) has dropped from its peak of USD 221/t in Oct’21 to USD 88/t in Aug’23 and are now consolidating between USD 92-96/t. South African (6,000 GAR) has also dropped its peak of USD 430/t in Mar’22 to USD 91/t in Feb’24 and is currently at USD 104-107/t levels. Similarly, Australian coal prices also peaked at USD 447/t in Sep’22 and are now consolidating at USD 135-140/t. Taking cues from global markets and domestic demand, e-auction prices for Coal India remains range-bound, INR 2300-2500/t during Nov’23-Jun’24 vs. INR 3431/t in Apr’23.

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