Investors gave a thumbs down to Coal India Ltd’s (CIL’s) latest production and sales (by volume) numbers. Production increased 6.3% year-on-year for February while sales grew at an even slower pace of 5.5%. See the chart alongside.

Weak power sector demand continues to haunt sales growth and last month seems to be no exception. All India coal stock at power plants as per Central Electricity Authority’s February report is 24 days versus a normative requirement of 21 days, pointed out a report by JM Financial Institutional Securities Ltd. In comparison, coal stocks at power plants were 9-10 days last year.

February numbers were announced on Tuesday after market hours. On Wednesday, the CIL stock declined about 2%, on a day when the benchmark Sensex increased 2%.

Nevertheless, performance for the year so far is nothing to complain about. Production and offtake growth between April-February was 9.2% and 9.3%, respectively, representing 97% of the targeted level for each. Achieving the full-year target looks difficult. The implied production/offtake year-on-year growth in March is 27%/41%, for the company to achieve its fiscal year 2016 targets. That’s a tall order.

CIL shares showed a modest gain after it announced better-than-expected December quarter results. Demand concerns and muted outlook on realizations continue to weigh on the stock. There is hope that power sector demand could improve during the summer season and thus lead to better offtake in the near future. That remains to be seen. Demand from non-power sector (especially the cement industry) though, isn’t particularly bright and the situation may persist for some time.

Further, doubling of the clean environment cess on coal to 400 a tonne is expected to have an adverse impact. Sure, this increase will be passed on to consumers. But the 3-7% rise in cost of coal-fired electricity generation triggered by doubling the cess arguably reduces the scope (capability and magnitude) for CIL to raise notified prices in fiscal year 2017, say analysts from Nomura Research.

Also, the disinvestment overhang could persist. “FY17 disinvestment target (excluding strategic sale) is set at a high level again— 360 billion ( 36,000 crore) versus FY16 budget/revised target of 410 billion/ 253 billion—implying a lingering equity overhang for Coal India," wrote Nomura analysts in a report on 1 March.

CIL share valuations at 12 times estimated earnings for the next fiscal year seem to be factoring in these worries to a good extent.

The writer does not own shares in the above-mentioned companies.