Coal India Ltd (CIL) is likely to raise its production target for the current fiscal year. The company achieved its target for the June quarter, registering a 6.4% year-on-year (y-o-y) increase in production, Mint reported on 5 July. This seems to have given the firm the confidence that it will beat the 464 million tonnes target it had set earlier, which represented a 6.5% y-o-y increase in production.
Investors would do well to take this with a pinch of salt, considering the state-owned firm’s past record of achieving targets. Last year, it started with a growth target of 4.8%, pared it to 2% and ended with a mere 1% increase.
Will this year be different? Although the company has done well on production in the June quarter, a lot depends on how the monsoon pans out, analysts say. A good monsoon typically affects mining and the September quarter tends to be a bit slow for the miner.
Last year, bad weather had resulted in weak production and, to that extent, the low base should help.
The offtake numbers for the June quarter, too, have been encouraging. CIL’s offtake stood at 112.92 million tonnes in the three months ended June, which represents about a 6% increase compared with a year ago. Additionally, inventory reduced in the quarter was more or less the same as in the year-ago period.
While production will depend on the monsoon, sales volume will also depend on the availability of railway wagons. Another important issue would be the miner’s performance in the second half of this fiscal. It had performed relatively stronger in the second half of last fiscal compared with the first half.
At Rs349, the CIL stock trades at 13 times its estimated earnings for the current fiscal. According to some analysts, this is high compared with global peers. The scrip has risen by 15% from a low in mid-May, riding piggyback on the recovery in the markets.
Graphic by Ahmed Raza Khan/Mint