Improved coal base generation adding to optimism on Coal India
With the rally in commodity stocks, Coal India Ltd, the country’s largest coal producer and supplier, too, is seeing stock prices rebound. Adding to its gains of more than 7% on Monday, the stock saw intraday gains of about 5% in morning trades on Tuesday. Strong demand and rising realizations for commodities such as steel, aluminium, cement and others bode well for coal demand and realizations. Rebound in demand from the power sector, though, provides the silver lining. Power demand remains crucial for Coal India’s volumes as the majority of supplies under fuel supply agreement (FSA) are directed towards thermal power plants in the country. It was the reduced inventory and lower plant load factor (PLF) of power plants that had meant a weak volume outlook for Coal India.
Coal India had missed its FY21 production target of 660 Million Tonnes (MT) by a fair margin. Its production was down by 1% year-on-year (y-o-y) at 596MT. FY21 sales volume were also down 1.3% y-o-y at 574MT. April though showed strong growth nevertheless was on a low base of last year. The analysts at JM Financial Institutional Securities Ltd said that “on a 2-year CAGR basis, offtake growth remained muted at 1.5% while production fell by 4% in April 2021.
The good news, however, is also that coal stocks at power plants remained healthy (at 12 days), while domestic coal supply was substituting coal imports, (about 31% y-o-y in January 2021), suggested JM Financial data.
The improving PLF of thermal power plants is also leading to more optimism. Rupesh Sankhe, an analyst at Elara Capital said that Coal-based generation is showing improvement. PLF is at about 65% compared with 45% a few months ago.
Further the e-auction premiums (over and above the notified price) may also see improvement with the rising demand.
Improved power demand, e-auction premiums and export substitution are key to the company’s forward prospects.
Meanwhile, for the quarter ending March, analysts expect Coal India to report flat offtakes on a y-o-y basis (164MT). The Ebitda (excluding overburden removal) is expected to mark a decline of ~39% y-o-y suggests Motilal Oswal Financial Services Ltd (MOFL) result preview. The same would be led by lower realizations (FSA and e-auction) they add. They expect e-auction realizations during the March quarter to be lower by 24% y-o-y. Overall, MOFL expects net profit to decline by 31% y-o-y to Rs3,180 crore.
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