2 weeks Ago
Coal India Ltd’s (CIL) stock is down about 5% after its September quarter (Q2FY25) Ebitda missed Street estimates by a wide margin. In a seasonally weak quarter, price realisation and sales volumes declined year-on-year, hurting Q2 profitability. Realisation for the company’s e-auction sales fell 13% amid lower international prices and were 5% down for fuel supply agreement (FSA) sales.
Total sales volume fell 3.5% to 168 million tonnes as heavy rainfall increased hydel generation and reduced overall power demand. The outcome was that Ebitda, excluding overburden removal (OBR) expenses, declined 20% year-on-year to 7,200 crore.
Systematix Institutional Equities has cut its Ebitda estimate for FY25 by 18% and for FY26 by 11%, on a mix of volume and price assumptions. Also read: Due to an accounting policy change, CIL has been writing back additional provisions made for OBR costs until FY22. It wrote back 1,500 crore in Q2FY25, and still has about 60,000 crore of provisions to be written back over the coming years.
Raising capacity CIL plans to increase its coal mining capacity to one billion tonnes by FY27, up from 774 million tonnes in FY24, to meet the growing demand. It is also increasing coal-washing capacity by setting up eight washeries for coking coal, which would help lower its dependence on coking coal imports. Volume off-take will also be aided by the expected commissioning of two rail lines by December and June, which would increase its coal evacuation capacity by 90 million tonnes.
Also read: The production target for FY25 stands at 838 million tonnes and CIL has achieved 41% of this in the first half of the fiscal year. Thus, how production and sales volume shape up over the next two quarters is crucial. CIL’s shares are down about 18% from their August peak and trade at an enterprise value of 5.
3 times its estimated FY25 Ebitda, shows Bloomberg data. Valuations are not demanding, although near-term upsides may be capped if volume growth does not pick up adequately. In the long-run, domestic consumption of coal is projected to remain strong, with major thermal power plants in various stages of commissioning.
“With 31 GW of thermal power capacity under construction, 5.6 GW of projects under various stages of tendering, and another 41 GW under planning, we expect the demand for coal for power generation to consistently grow over the next decade," said a JM Financial Institutional Securities report dated 26 October. Also read:.
