Improved offtake from power sector crucial for driving Coal India's volumes | Mint
Active Stocks
Fri Feb 23 2024 15:58:13
  1. Tata Steel share price
  2. 145.50 -0.24%
  1. State Bank Of India share price
  2. 759.40 -0.86%
  1. HDFC Bank share price
  2. 1,420.90 0.08%
  1. NTPC share price
  2. 337.70 -0.54%
  1. ITC share price
  2. 411.60 -0.65%
Business News/ Markets / Mark To Market/  Improved offtake from power sector crucial for driving Coal India's volumes
BackBack

Improved offtake from power sector crucial for driving Coal India's volumes

E-auction premiums have improved to 12.3% compared to 9% seen in September. Though the premiums have improved, these are still much lower than about 30% average premiums seen during the same period last year

Coal India has committed significant capex for pushing up production. Photo: BloombergPremium
Coal India has committed significant capex for pushing up production. Photo: Bloomberg

Coal India Ltd, which had seen some uptick in sales volumes during the last few months, has failed to impress the Street with its December sales numbers. Sales volumes declined 2.1% year-on-year, albeit on a high base.

The power sector demand revival holds key for driving sales, say analysts. Coal India under Fuel Supply Agreements (FSA) supplies most of its produce to thermal plant capacities.

Also Read | The race to take fashion retail online

Rising e-auction sales that are more profitable may provide support to earnings. E-auction premiums (over and above the FSA price) are seeing some uptick with rising industrial activities, lifting Street sentiments marginally.

E-auction premiums have improved to 12.3% compared to 9% seen in September, suggests Edelweiss Securities Ltd data. Though the premiums have improved, these are still much lower than about 30% average premiums seen during the same period last year. Declining e-auction premiums had been one of the key concerns of the Street, leading to underperformance of Coal India.

E-auction volumes are improving after lockdown-led disruption seen during the June quarter. The demand from other user industries has picked up well. Till November, e-auction volume (offered) by Coal India was up 77% YoY at 68.3 MT, as per analysts. E-auction volumes and realisations will lead to a sequential improvement in December quarter performance.

To drive volumes, the company can direct more supplies towards e-auctions, for which the production uptick holds the key. The production uptick is also important if the company wants to succeed with its plans of targeting import substitutions to drive sales volumes. Analysts feel even if the company can tap a fourth of coal volumes that are being imported into the country, the volumes growth, that had remained muted in the past, can see a significant uptick.

On the production front, December saw a 0.5% growth. The April-December production at 392.8 million tonne is up just 1.1%. Thus, all eyes will be on the company's plans to ramp-up production.

The company has committed significant capex for pushing up production. Looking at the higher capex, Coal India's profits need to improve well for it being able to meet investor expectations on high dividend yield.

Analysts at Edelweiss Securities Ltd, in their note to clients, said that “while we believe dividend yield of 10% is still possible, investors’ concern around possible delinquencies is likely to keep stock performance subdued". The receivables from power sector (mostly state-owned companies) have continued to rise and stood at 23,300 crore at the end of November, as per Edelweiss.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More Less
Published: 06 Jan 2021, 01:39 PM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App