Coal India Q2 hit by weak volumes, high costs; brokerages split on outlook

Don't want to miss the best from Business Standard?

Coal India Ltd’s September quarter (Q2FY26) performance failed to impress Street watchers as higher operating costs, muted volumes, and lower stripping activity credit weighed on earnings. 

 

While Nuvama Institutional Equities and Emkay Global remained cautious on the near-term outlook, Motilal Oswal retained its bullish stance on the Coal India stock on the back of recovery prospects in the second half and longer-term growth visibility. 

The state-run miner posted in-line earnings before interest, tax, depreciation and amortisation (Ebitda) of ₹5,850 crore, down 24 per cent year-on-year (Y-o-Y), Nuvama said, attributing the fall to “higher CoP and lower credit of stripping activity adjustment.” The brokerage noted that Ebitda per tonne stood at ₹352, down ₹105 per tonne Y-o-Y.

 

“Volume growth has been missing with H1FY26 volume down ~3 per cent Y-o-Y due to lower power demand and rising competition from captive miners,” the brokerage pointed out. Nuvama trimmed its FY26E and FY27E Ebitda estimates by 3 per cent and 2 per cent, respectively, to factor in “lower volume and prices.”

 

Despite subdued earnings growth – with an estimated Ebitda compound annual growth rate (CAGR) of -1.2 per cent over FY25-28 – Nuvama analysts highlighted the stock’s attractive dividend yield of around 6.5 per cent, based on a dividend per share (DPS) estimate of ₹25. “We roll over to FY28E, yielding TP of ₹375 (earlier ₹367), valuing at 5x FY28E EV/Ebitda; maintain ‘Reduce’,” it said.

 

Motilal Oswal, however, remained upbeat on Coal India, calling the earnings a ‘big miss due to high costs’ but maintaining its ‘Buy’ rating with a target price of ₹440. “Coal India delivered muted performance, mainly due to weak volumes,” the brokerage said, noting that e-auction volumes accounted for around 10 per cent of total volumes in Q2FY26, with a premium of 55 per cent compared to 69 per cent a year ago.  ALSO READ | L&T's growth story intact, say analysts after Q2 show; buy, sell, or hold? 

Revenue for the quarter stood at ₹30,200 crore, down 2 per cent Y-o-Y and 16 per cent sequentially, against Motilal’s estimate of ₹29,900 crore. Adjusted Ebitda (excluding OBR expenses) came in at ₹5,850 crore, a steep 18 per cent Y-o-Y and 48 per cent quarter-on-quarter (Q-o-Q) decline, versus its estimate of ₹8,500 crore. “Ebitda was impacted primarily by higher other costs (+22 per cent Y-o-Y),” the brokerage added.

 

Ebitda per tonne dropped to ₹357, down 16 per cent Y-o-Y and 39 per cent Q-o-Q. Adjusted profit after tax (APAT) came in at ₹4,350 crore, down 31 per cent Y-o-Y and 50 per cent QoQ. “We expect e-auction volume and premium to recover in H2FY26, supported by demand recovery from the non-FSA sector,” Motilal Oswal said. The brokerage, thus, projects a 3 per cent volume compound annual growth rate (CAGR) over FY25-28, translating into 5 per cent revenue and 7 per cent Ebitda CAGR.

 

At the current market price, Coal India trades at 4.2x FY27E EV/Ebitda and 1.8x price-to-book value. “We reiterate our ‘Buy’ rating with a TP of ₹440 (premised on 4.5x EV/Ebitda on Sep’27 estimate),” it said.

 

Those at Emkay Global Financial Services echoed the weaker performance, noting that Coal India ‘reported weaker-than-expected Q2 results, with revenue at ₹26,900 crore, flat Y-o-Y.” The brokerage said production and offtake were down 4.1 per cent and 1.0 per cent, respectively, while “Ebitda fell 18.3 per cent Y-o-Y due to higher costs, resulting in an EPS of ₹7.1 versus the expected ₹7.9."  ALSO READ | APL Apollo fires on all cylinders; what's next for the stock? Find out here 

“Production and offtake declined sequentially on seasonal weakness, while FSA and e-auction prices also softened,” Emkay said. It cautioned that “subdued power demand and rising competition from private miners” may continue to pressure volumes and e-auction premiums in the near term.

 

However, Emkay maintained its ‘Add’ rating, highlighting medium-term support from capacity expansion plans. “Medium-term prospects are supported by plans to raise capacity to 900mt over the next 3-4 years,” it said. The brokerage revised its target price down by about 6 per cent to ₹400 from ₹425 earlier.

 

That said, brokerages remain divided, with Motilal Oswal analysts betting on a recovery-led upside, while those at Nuvama and Emkay remain cautious amid volume pressure and cost headwinds.