Coal India’ strong December offtake cheers investors
Premium- Investors will be watchful of the improvement in e-auction prices as it holds the key for improved profitability of the company
Coal India Ltd reported a very strong coal offtake (sales volume) growth of 15.7% year-on-year during December, boosting investor confidence. The stock rose more than 3% in morning trade on Monday. The company continues to do well on the offtake front led by firm demand from the power sector.
Coal India supplies most of its produce to the power sector under the fuel supply agreement (FSA). The April-December offtake stood at 481.8mt, up 17.6% year-on-year.
With good sales volume growth, the company also is likely to have taken care of the high inventories of about 100 million tonne (mt) that it had at the start of the financial year. The company produced 413.6 mt of coal during April-December period. Production in December grew 3.3% year-on-year. The production pace may catch up moving forward given strong sales growth, analysts feel. The company had raised its sales volume guidance to 660-670 mt for FY22.
Meanwhile, investors will be watchful of the improvement in e-auction prices as it holds the key for improved profitability of the company. Its e-auction realizations in Q2FY22 stood at ₹1,594/tonne, only 15.3% premium over FSA prices. In Q1, e-auction premium was at 12.5%. Analysts, however, expect e-auction premiums to improve significantly during the second half.
For the company's volume growth and e-auction price improvement, high imported coal prices also remain supportive. Coal India has been targeting imported coal substitution to help support its sales growth. The same is also important looking at the aggressive shift of power producers to renewable sources. It is the significant rise in renewable power capacities that have been the key concern of investors over the past few years.
Analysts at Kotak Institutional Equities, in their note dated 28 December, said “a continued shift towards renewable resources of power could weigh on long-term growth prospects of the company that is reflected in continued derating".
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