Improved coal base generation is adding to optimism on Coal India

With the rally in commodity stocks, Coal India Ltd, the country’s largest coal producer, too is seeing its stock prices rebound. The stock is up more than 13% in the last two trading sessions.

Strong demand and higher realizations for commodities such as steel, aluminium, cement and others bode well for demand and realizations of coal, a key input. Besides, the rebounding power sector demand in the country is also supporting coal demand.

Power demand remains crucial for Coal India’s volumes as the majority of supplies under fuel supply agreements (FSAs) are directed towards thermal power production. Earlier, low plant load factors (PLF) of power plants had meant that the volume outlook for Coal India was weak.

In fact, Coal India had missed its FY21 production target of 660 million tonnes (mt). Its production was down by 1% year-on-year (y-o-y) at 596mt. FY21 sales volume were also down 1.3% y-o-y at 574mt.

In April, it showed strong growth in production and dispatches. But this, too, is compared to the low base of last year. Analysts at JM Financial Institutional Securities Ltd said, “On a two-year CAGR basis, off-take growth remained muted at 1.5%, while production fell by 4% in April 2021″.

The good news, however, is that coal stocks at power plants remain healthy (at 12 days), while domestic coal supply is substituting coal imports (a growth of about 31% y-o-y in January 2021), suggests JM Financial data.