CIL's prospects expect to rise amid increased power demand

Coal shortages and rising power demand amid an intense summer have increased prospects for Coal India Limited (CIL).

With a strong demand driving prices for fossil fuel, domestic coal prices are also being supported by high international prices. Cheaper coal imports can help drive e-auction realisations.

With CIL set to gain sales volume and realisation front, earnings expectations are improving, resulting in a sharp uptick in the stock price.

Its sales volume at 662 million tonnes (mt) marked a 15% rise from FY21. Besides, its pit-head inventory at 57 mt in March is considered less because of the inadequate stock level at power plants.

According to the analysts, CIL's overall volume outlook remains strong. It expects off-take to accelerate from seasonally strong demand and high import prices. Besides, increased production at Bharat Coking Coal Limited (BCCL) and profitable subsidiaries, including Mahanadi Coalfields Limited (MCL), South Eastern Coalfields Limited (SECL) and Northern Coalfields Limited (NCL), are likely to expand margins.

CIL's supplies to the power sector have increased by 14.2% in the first half of April, from the same period last year to 1.64 mt. Its production increased by 27% from 26.4 mt in the first half of April.

CareEdge Ratings said that the dependence on domestic production is set to rise as prices surge amid geopolitical tensions. Higher domestic coal dispatches to the power sector were due to reduced coal imports, apart from an increase in overall demand for power generation with a resumption in economic activity.

Robust volumes are also boosting margins at CIL. According to a report, CIL's e-auction premium of 290% this March was at a record high compared to February with 120%, with volumes doubling sequentially to 7.9 mt. Analysts expect dispatches to remain at elevated levels and a pick-up in non-power off-take after plant inventory normalises.

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Also read: CIL offered 160.5 mt till Feb under e-auction of coal