Beset by production challenges and lower price realizations in recent times, Coal India Ltd’s share price fell to an all-time low of 214 on 11 February on the National Stock Exchange.

For all the pessimism, though, Coal India surprised the Street with better-than-expected volume growth and higher realizations. This was topped off with good discipline in operating expenditure, resulting in better operating margin.

The company achieved a substantial 13% increase in FSA realizations to 1,334 a tonne. (FSA is the fuel-supply agreement the company has inked with power producers.)

Further, in the e-auction segment, slightly better volumes have been a significant contributor to profits in the third quarter. The upshot: net profit increased 52% over last year to 4,565.7 crore.

For some time, the Street has been apprehensive about whether Coal India would be able to ramp-up volumes. Till October, its volumes grew 7.5% year-on-year, but fell in the past few months.

(Sarvesh Kumar Sharma/Mint)

A few concerns on coal production persist. Some of its mines such as Gevra, Dipka and Kusmunda in Chhattisgarh were hit by a delay in renewals with third-party contractors.

Nevertheless, concerns on production are now being addressed. Some of the contracts have been renewed. Besides, the company received approvals to expand production in its Kusmunda mines from 36 million tonnes to 40 million tonnes.

Still, given the past track record and continuing periodic strikes at some fields, analysts are expecting volume growth to continue at slightly lower levels. Brokerage firm Jefferies India Pvt. Ltd has trimmed its FY19 and FY20 volume growth estimates to 4.7% and 5.4%, respectively. This is lower than FY18 volume growth of 6.8%.

On the stock price front, Coal India’s management recently announced a buyback of 44.6 million shares at 234 each. But that has done little to shore up the stock price. The share buyback comprises only 0.76% of its market capitalization of 1.36 trillion. Analysts reckon that with 31,475 crore on its books, a larger share buyback would not have been a constraint, and would have done well for the stock.

Still, at a quarterly net profit run rate of 4,500 crore, Coal India could clock around 17,000 crore in annual profit in FY19, according to analysts. At the current market price of 220.25, this results in a forward price-earnings of a mere eight times on its earnings.

What’s more, Coal India has been paying a tidy dividend over the years resulting in a dividend yield of 7.5%. Nevertheless, for its share price to catch the fancy of investors, much depends on volume expansion. Analysts say that if volume growth exceeds expectations, the share price could swing up from current levels. If not, the stock could continue to meander. In fact, in the past three months, some analysts downgraded the stock to hold and underperform.