At first glance, Coal India Ltd’s reported March quarter consolidated Ebitda looks miserably low at just Rs196 crore. But employee costs rose a whopping 80% against the year-ago period, which included Rs7,384 crore towards provisions for an increase in the gratuity ceiling. This is one-off in nature. Adjusting for this, earnings are better than expected, say analysts.

Ebitda is short for earnings before interest, tax, depreciation and amortization.

In fact, after the March quarter numbers, analysts may upgrade their future earnings expectations. Revenues have exceeded some analysts’ forecasts, helped by higher price realizations. Blended realizations rose nearly 7% year-on-year to Rs1,581 per tonne. This also represents 16% growth over the December quarter.

Sequentially, realizations of coal sold through the fuel supply agreement (FSA) route increased at a much faster pace boosting overall realizations. The coal miner took price hikes in January and that was expected to boost FSA realizations. Therefore, better FSA prices for the March quarter may not come as a big surprise. Realizations of e-auction coal also improved compared to the December quarter.

Additionally, other income of Rs2,000 crore proved helpful on an overall basis.

Coal India shares dropped almost 3% lower during trading hours on Tuesday in reaction to the results before recovering eventually and closing 1% lower. So far in 2018, the stock has outperformed the benchmark Sensex for most part of the year. Valuations are not expensive. Currently, the stock trades at about 12 times estimated earnings for fiscal year 2019 (FY19), based on Bloomberg data.

On production and offtake (or sales volume), the year has started on a satisfactory note. Production and offtake rose by 16.7% and 13%, respectively, for April. Sure, production growth was helped by a favourable base as output had declined year-on-year in April 2017. Still, these numbers aren’t bad to begin with. What remains to be seen is whether the momentum is sustained.

Optimism on the company achieving its production target of 630 million tonnes for FY19 isn’t particularly high. To achieve this production guidance, Coal India will have to clock 10.6% increase in production for the remaining 11 months of FY19 over a year ago. That’s a tall ask. The firm fell short of its production targets in FY18. In that light, investors would do well to watch whether production growth momentum seen in April continues. The Coal India stock would also take cues from how demand from the power sector shapes up in the rest of the fiscal year.