Near-term weakness in Coal India stock seen as buying opportunity

The long-term rationale for investing in Coal India Limited (CIL) may be intact, even as it posted modest results for the April-June quarter (Q1) of financial year 2026 and faces increasing competition from captive production.

 

More thermal capacity is expected to come onstream, and the country’s largest coal miner will remain the biggest player by far.  

 

In Q1FY26, CIL reported revenue of ₹35,842 crore, a decline of 1.7 per cent year-on-year (Y-o-Y). Volume offtake decreased while realisation was almost flat. The adjusted EBITDA (ex-overburden removal) of ₹11,126 crore was down 3.6 per cent YoY. Consolidated PAT of ₹8,743 crore was down 20.2 per cent Y-o-Y because of low other income and higher depreciation.

 

Captive consumption and an early monsoon (reducing cooling demand) led to low volumes. The fuel supply agreement (FSA) volumes of 165.7 million tonne (Mt) were down 4 per cent Y-o-Y, while e-auction volumes fell 8 per cent Y-o-Y. The FSA realisation of ₹1,550 per tonne was up 2 per cent Y-o-Y. The e-auction realisation of ₹2,332 per tonne (50 per cent premium) was down 2 per cent Y-o-Y. The operating margin of 31 per cent decreased 61 bps Y-o-Y and adjusted EBITDA per tonne of ₹582 was flat. CIL declared an interim dividend of ₹5.5 per share.

 

India’s installed power capacity was 490Gw as of July. Renewable energy (RE) (237 Gw, 49 per cent share) has surpassed thermal capacity (220 Gw, 44 per cent share). RE capacity has grown at 10.9 per cent CAGR over the long-term (about 15 years) while thermal has grown at 6.5 per cent CAGR. But coal still contributes 65-75 per cent of generation. CIL accounts for over 70 per cent of coal production (including captives). Over 80 per cent of CIL’s production is supplied to the power sector.

 

Its earnings may be under pressure in FY26, due to low volume growth and rising share of captive mining, which contributed 197 Mt in FY25. Subdued global coal prices will cap e-auction prices.  

 

But near-term weakness could create an opportunity, since long-term demand remains healthy. Demand for coal may reach 1.3-1.5 billion tonnes by 2030, driven by projected peak power demand of 363GW by FY30. While, 40Gw of new coal-based capacity is in planning/construction stage.

 

CIL’s e-auction volumes were 79 Mt in FY25 (10 per cent of total dispatches), at 68 per cent premium over FSA prices. Lower global coal prices have led to e-auction prices at ₹2,400-2,500 per tonne. CIL targets 15 per cent of FY26 volumes sold through e-auctions, with premiums at 70 per cent over FSA.

 

The company has ₹15,000-20,000 crore annual capex plans over 4-5 years, focusing on production, evacuation infrastructure, and diversification into other minerals, gasification, thermal plants, and renewables. It targets 3Gw of renewable capacity by FY28 (₹15,000 crore investment) and 6.5 Gw by FY30 (additional ₹10,000 crore) to meet Net Zero goals.

 

CIL’s production and dispatches for the first five months of FY26 were at 280 Mt and 298 Mt respectively, declining 3 per cent Y-o-Y. In FY25, captive mines produced 197 Mt (up 29 per cent Y-o-Y), accounting for 15 per cent of India’s total production. During April-July, captive volumes rose 10 per cent Y-o-Y to 62 Mt. India’s thermal coal imports stood at 186 Mt in FY25, down from 206 Mt in FY24, due to increased output from captive mines.

 

Due to competition, CIL could see modest volume CAGR of 2-4 per cent over FY26-27. But despite near-term weakness, the long-term demand outlook is healthy. Analysts are positive on the stock, despite cutting revenue and EBITDA estimates for FY26 and FY27 to account for lower volume growth and modest realisations.

 

The stock is reasonably valued, and likely to continue dividend payout at Rs 27-29 per share. The pending IPOs of its subsidiaries would lead to some value unlocking. The stock offers a high dividend yield of 7 per cent at current levels.