Coal India gains 2.5% after it records first output growth in 2020-21

Shares of Coal India were up 2.5 per cent at Rs 136.90 on the BSE in the early morning trade on Wednesday after the company registered a 7.1 per cent year-on-year (YoY) growth in coal output at 37.17 million tonnes (MT) in August 2020.

The state-owned company said that coal off-take increased 9.3 per cent at 44.34 MT in last month compared to the same period a year ago. For the first time in the ongoing fiscal, Coal India has recorded growth in both production and off-take.

Coal India has set the capital expenditure at Rs 10,000 crore for the year 2020-21. The company, in its 2019-20 annual report, said that it has planned to invest substantial amount in diversification projects viz. solar power, revival of fertilizer plants, coal gasification, coal bed methane (CBM), and rail wagon procurement etc. during 2020-21.

"Based on the demand projection in ‘Vision 2024’ for coal sector in the country and subsequent demand projection on Coal India, a roadmap has been prepared to project production plan in medium term wherein the company has envisaged 1 Billion Tonne (Bt) coal production in the year 2023-24 to meet the coal demand of the country. To achieve this target, the company has identified major projects and assessed other related issues," Coal India said.

Analysts at JP Morgan have ‘overweight’ rating on Coal India with March '21 price target of Rs 192 per share. The brokerage firm sees improvement in the two key issues that have been an overhang for the stock. As the DISCOMs’ financial liquidity improves, they expect mounting receivables from the power sector come off in 2H.

"Secondly, as coal inventories decline and global coal prices stabilize with LNG moving higher, we would expect both volumes and prices to improve in 2H. Admittedly, 1HFY21 would be effectively a write-off, but investors are essentially writing off earnings for FY22. Given COAL's near-monopoly status on coal sales in India, and an eventual normalization of coal demand (which is a proxy for energy demand and the economy), we believe the mismatch between COAL’s stock price and its intrinsic value is the highest within our coverage universe," the brokerage said in its report.

In past the one year, Coal India has underperformed the market by falling 26 per cent, as compared to 4 per cent rise in the S&P BSE Sensex.