Coal India stock (CIL) experienced a challenging period in the September quarter of FY24, marked by a continuous decline in e-auction realizations. With a plummet to ₹2,838 per tonne, this quarter marked the fourth consecutive drop in these figures, creating concern among stakeholders.
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CIL’s shares are currently 7% below their 52-week high of ₹359 apiece, signaling optimism for the company’s earnings outlook. This positivity is primarily propelled by anticipated volume growth and improved e-auction realizations.
Coal India stock – Management outlook
In its pursuit, CIL has set ambitious targets for production and sales offtake, aiming at 780 million tonnes (mt) each for FY24. Achieving these goals would necessitate a substantial 10% and 16% growth, respectively, in the remaining five months. The company anticipates a surge in offtake in the later half of FY24, buoyed by seasonal factors and a projected robust demand for coal in the coming years, as indicated by the management in a recent investor call.
However, apart from increasing volumes, the trajectory of e-auction price realizations remains a critical determinant of CIL’s performance. The company sells coal through fuel supply agreements (FSAs) and e-auctions, where the latter experienced a decline in premiums. Nevertheless, despite this drop, CIL managed to achieve a 12% year-on-year growth in EBITDA, primarily due to higher offtake and reduced input costs, challenging the notion that e-auction prices singularly dictate profitability.
Coal India stock – Challenges & Analysts’ view & predictions
Optimism persists despite the Q2 drop in e-auction premiums, fueled by expectations of an uptick in the coming months. Analysts foresee a potential rise in e-auction premiums, reflecting the international coal price trend, which has been on the rise since October after hitting a low in July. Additionally, increased power demand and potential shortages further strengthen the coal demand outlook.
Analysts predict a substantial 118% e-auction premium for October, driven by higher volumes in the second half of the fiscal year. CIL aims for a 15% e-auction volume of its production in H2, potentially boosting earnings. Furthermore, any potential increase in FSA prices could fortify CIL’s profitability.
Despite these positive indicators, CIL faces challenges, particularly in managing employee costs, aiming for a gradual 5% reduction in staff count annually over the next 5-10 years. Moreover, the company is actively upgrading its rail infrastructure to accommodate the anticipated rise in volumes.
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