Shares of India’s largest coal producer, Coal India Ltd, have been lacklustre on the bourses. So far this fiscal year, the stock has underperformed the BSE 100 index, despite decent results in the first two quarters. Analysts say sentiment for the Coal India stock has been muted owing to the government’s offer to sell a 3% stake in the company, and the resulting increase in free float.

Further, the launch of the fourth tranche of CPSE Exchange Traded Fund (ETF), which included Coal India in the basket, did not help either. After all, if there are other avenues to buy the same shares, demand in the secondary market naturally gets impacted.

Unfortunately, the company’s recently released coal production and offtake, or sales volume, numbers for November don’t offer much inspiration for investors. Production and offtake increased 1.6% and 0.6%, respectively, last month, on a year-on-year basis. The drag in November has pulled down overall growth numbers for FY19 so far.

When October numbers were announced, the company’s production and offtake growth cumulatively over April to October was 10.1% and 7.4%, respectively. April-November coal production and offtake growth has fallen to 8.8% and 6.5%, respectively.

For the rest of FY19, therefore, Coal India’s production needs to grow by 14% to achieve its FY19 production target of 630 million tonnes, pointed out analysts from SBICAP Securities Ltd in a report on 3 December. Offtake growth needs to be 12% for the company to meet its target. These are tall asking rates. This also increases the chances of Coal India missing its targets. The company achieved 95% of its production target and 97% of its offtake target in FY18.

Meanwhile, outlook for international coal prices isn’t rosy and that is expected to weigh on prices of coal sold through the e-auction route, which typically follows market prices. “Seasonally lower demand from China and its decision to restrict imports led to a decline in global thermal prices in November (by 11% from the peak in October)," said SBICAP analysts.

Sure, coal demand remains strong both from power and non-power sectors, which augurs well for the offtake outlook. In that backdrop, higher production would be helpful.

For now though, the above- mentioned factors are likely to dampen sentiment for the Coal India stock. On the bright side, the underperformance of its shares has made valuations undemanding. The stock trades at nine times estimated earnings for FY19, based on Bloomberg data.

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