Mumbai: The Coal India Ltd stock may not be firing up any time soon as volume offtake in the third quarter (Q3) has been patchy, with demand for the fuel by thermal power plants also slowing a little. That has certainly not helped its stock, which is meandering near decadal lows, and remained flat during trade on Tuesday.

The firm dispatched about 142 million tonnes (mt) of coal in Q3, but it was still lower by about 8% from the year-earlier period. Fuel supply agreement (FSA) coal price realizations have been 6% higher year-on-year (y-o-y), but average realizations for sales through the e-auction route fell 8%. Pricing trends in the two segments offset each other, but revenue growth took a hit due to the lower offtake. Revenue dipped 7.4% y-o-y.

Operating expenses were high in Q3 led by an increase in employee expenses, which added pressure on profitability. Earnings before interest, tax, depreciation and amortization fell 26% y-o-y.

Net profit dipped 14% y-o-y. However, one positive takeaway is that net profit has been better than analysts’ estimates marginally because of savings on corporate tax.

To an extent, better realizations from the FSA route may be an indication that coal demand from the non-thermal power segment may be improving. The company also raised coal grades this quarter. Power consumption will also rise in summer, leading to higher demand for coal.

(Graphic: Santosh Sharma/Mint)
(Graphic: Santosh Sharma/Mint)

Coal production at some of its mines that were swamped because of floods last year has started to ramp up. Output is also expected to rise in Q4, but Coal India would still fall short of its target of 650 mt for FY20. In Q4, even if production rises to about 200 mt from 147.5 mt in Q3, total output would be just 590 mt in FY20.

“We believe that coal would continue to dominate India’s electricity generation. Over the medium term, we expect volumes to continue growing for Coal India at 5%," said analysts at Motilal Oswal Financial Services Ltd in a note.

However, given that the Coal India stock has been meandering at a low level, valuations have turned soft, improving dividend yields. However, globally, as investors move towards cleaner fuels and because of the huge disinvestment target for FY21, the outlook for the stock remains cloudy.

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