Analyst Corner: Maintain ‘buy’ on Coal India with TP of Rs 180

The onset of Covid-19 in India had come at a time when inventory at both Coal India’s mines and power plants were at already high levels.

Another month of improved offtake in dispatches, with volumes at 55.1 mt, registering a 37.6% YoY increase in May 2021. For the first two months of FY22, Coal India’s offtake now remains higher by 38% YoY.

Offtake growth in May 2021 comes on the back of: a) a 15% rise in coal-based generation (based on initial data from POSOCO), amid a 7% rise in overall power demand, and b) re-stocking of inventory at power plants (up 5 mt MoM).
Coal India’s production increased a modest 1.7% YoY to 42.1 mt (YTD: 3% YoY). This though is on expected lines, amid the large inventory lying at its mines. While there are uncertainties over demand amid stricter restrictions – and rightly so – power demand in May 2021 was also impacted by unseasonal weather conditions. Over the past fortnight, demand has shown signs of an uptick (+10%), with some normalisation in demand from the western region. Inventory at power plants is still low at 29 mt (16 days of consumption) and we expect it to provide support to Coal India’s offtake.

Signs of a recovery in e-auction realisations: The onset of Covid-19 in India had come at a time when inventory at both Coal India’s mines and power plants were at already high levels. This, coupled with the must-run status of renewables, meant demand for coal bore the brunt of weakened activity. This led to a sharp decline in e-auction realisations. With a recovery in demand, e-auction premiums and realizations haven shown signs of an improvement. We expect this to eventually seep in and improve as inventory levels at Coal India’s mines reduce.

e-auction realization for COAL | 9MFY21: INR1,488/t, 3Q: INR1,466/t.