Coal India Ltd’s shares are no diamond in the mine. The stock has been a laggard so far this fiscal year, underperforming the Nifty 500 index by 15%, even after adding back the generous dividend it paid investors.

Expect the trend to continue because production and offtake numbers for December are not encouraging at all. Output and sales volumes (or offtake) last month declined by 0.9% and 1.2%, respectively, on a year-on-year basis. According to analysts at Edelweiss Securities Ltd, the fall in shipments is a first since October 2016.

Sure, growth rates for the nine month period ended December are better with production and offtake increasing by 7.4% and 5.5%, respectively, over the same period last year. But this is hardly helpful. Coal India’s asking production growth rate for the remaining three months to meet its target of 630 million tonnes for FY19 will have to be about 19% year-on-year. That’s a tall order and it’s a foregone conclusion the company will miss its guidance.

From a slightly more near-term perspective, expectations from the December quarter aren’t particularly rosy. That’s mainly on account of subdued outlook on volumes of coal sold through the e-auction route. E-auction coal typically follows market prices and enjoys higher realizations compared to coal sold through the fuel supply agreement (FSA).

“The e-auction volume dwindled in Oct-Nov’18 as the government prioritized supply to power plants under FSA in the festive period, thereby offsetting the benefit of high e-auction premiums," wrote analysts from SBICAP Securities Ltd in a note on 2 January. This is likely to impact Coal India’s blended price realization and profitability in the December quarter, added the broker.

Besides, impacted by grade slippages, wage revision and elevated capex, Coal India’s free cash flow to equity (FCFE) increased at a tepid compound annual growth rate of 2.5% over fiscal years 2014-2018 less than half of growth in volumes, pointed out analysts from Prabhudas Lilladher Pvt. Ltd in a report on 26 December.

“We expect FCFE growth to languish between 2.0-2.2% in FY19e-FY21e due to stable earnings growth and high capex intensity," they added.

These factors will continue to keep sentiments muted for the Coal India stock. In fact, the stock hasn’t performed on the bourses despite coughing up good numbers for the half- year ended September.

In the last few months, the government’s offer to sell shares in the company, leading to an increase in free float, is another reason that weighed on the stock.

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