Volume outlook, e-auction premiums remain positive for Coal India stock

Given a strong volume outlook, e-auction premiums and assuming lower operating costs, the long-term outlook remains positive

The Q2FY25 revenue for Coal India (CIL) was reported at Rs 30,700 crore (down 6 per cent year-on-year or Y-o-Y and 16 per cent sequentially).

 

The blended average selling price was Rs 1,622/tonne (down 6 per cent Y-o-Y and 3 per cent quarter-on-quarter or Q-o-Q).

 

Adjusted operating profit stood at Rs 7,200 crore (down 20 per cent Y-o-Y and 38 per cent Q-o-Q) due to lower-than-expected e-auction volumes and higher costs.

 

The adjusted operating profit/tonne stood at Rs 426/tonne (down 17 per cent Y-o-Y and 27 per cent Q-o-Q). Adjusted net profit came in at Rs 6,300 crore (down 22 per cent Y-o-Y and 43 per cent Q-o-Q) due to the weak operating performance and lower other income.

 

In H1FY25, revenue declined 2 per cent Y-o-Y, while adjusted operating profit and net profit both fell 7 per cent.

 

The e-auction volume stood at 15 million tonnes or mt (down 5 per cent Y-o-Y and 35 per cent Q-o-Q) with an e-auction premium of 69 per cent (58 per cent premium in Q1FY25).

 

CIL declared an interim dividend of Rs 15.75 per share in Q2.

 

Volumes were affected by monsoon and profitability by lower e-auction volumes.

 

Increase in total operating expenses (opex) amounted to Rs 1,080 crore, which led to lower operating profit along with moderation in e-auction realisations.

 

Q2 production was 152 mt (down 3 per cent Y-o-Y and 20 per cent Q-o-Q) as heavy monsoon affected mining.

 

Sales volume stood at 168 mt (down 3 per cent Y-o-Y and 15 per cent Q-o-Q). 

 

Fuel supply agreement (FSA) realisation stood at Rs 1,462/tonne, down 5 per cent Y-o-Y and 4 per cent Q-o-Q, with FSA volume of 148 mt (down 4 per cent Y-o-Y and 14 per cent Q-o-Q).

 

Given the strong volume outlook, e-auction premiums and assuming lower operating costs, the long-term outlook remains positive.

 

CIL is increasing its coal-washer capacity by setting up eight coking coal washeries, which will strengthen its position in coking coal.

 

The company expects coal mine expansions to be funded via internal accruals and for strategic diversification projects, such as renewable energy facilities and coal gasification.

 

The long-term power demand is leading India to refocus on thermal capacity additions.

 

International coal prices are stable and e-auction prices are likely to remain range-bound after trending down over the past two years, from a peak of Rs 6,062/tonne in Q2FY23.

 

CIL production for FY25 will be around 839 mt, rising to 915 mt during FY26.

 

CIL is changing its accounting treatment for the cost of removing overburden as an asset.

 

The company has reclassified the cost of removing overburden as “stripping activity asset” under property, plant and equipment (PPE) from April 1, 2022, and will amortise cost over the remaining useful life of respective mines.

 

Previously, this was treated as a provision and provisions created till March 31, 2022, are being reversed and credited back in a systematic manner as “stripping activity adjustment.”

 

Accordingly, Rs 6,100 crore has been adjusted from the earlier provision, with a balance of Rs 59,800 crore to be adjusted in subsequent periods.

 

Energy consumption and peak demand in September 2024 moderated to 141 billion units (down 1 per cent Y-o-Y) and 231 Gw, respectively, (down 5 per cent Y-o-Y). This was due to seasonal factors and heavy rain.

 

But the government’s target to add 93 Gw of new thermal capacity by FY32 indicates continued demand for coal.

 

About 31 Gw of thermal power capacity is under construction, with 5.6 Gw of projects under various stages of tendering, and 41 Gw under planning.

 

Analysts are divided in their recommendations with price targets ranging from Rs 425 (sell) to Rs 601 (buy).