Coal India stock plunges 4% after company reports dip in August sales volume; Should you buy?

Shares of state-owned Coal India (CIL) dropped by 4 per cent, hitting a low of ₹500.70 on the BSE on Wednesday, following the company's report of 52.1 million tonnes in sales volumes on Monday, a 12% decline year-on-year.

Despite this, domestic brokerages such as Nuvama and JM Financial remain optimistic about the stock, noting that a few dips do not alter its long-term prospects.

CIL reported sales volumes of 52.1 million tons in August 2024, a 12 per cent decline year-over-year, attributed to reduced power demand due to heavy rainfall. However, the overall volume for July-August 2024 dropped by 5.7 per cent compared to the previous year, suggesting that the decrease was not solely due to the monsoon but also reflected ongoing weak demand.

This was further supported by increased coal production from captive mines and stable high imports. The total sales volume for April to August 2024 reached 308 million tons, marking a 1 per cent year-over-year increase.

What analysts say?

Brokerage firm JM Financial has reiterated its buy rating on Coal India, setting a target price of ₹601. “With a doable production target of 838 MT for FY25 (and a more ambitious MoU target of 908 MT), our confidence in Coal India's long-term growth remains strong, supported by favourable macros, including record power demand, a renewed focus on thermal capacity addition, and strategic initiatives like MDO,” said JM Financial in its report.

Meanwhile, another brokerage firm Nuvama has a ‘hold’ rating on the stock and reduced the target price slightly to ₹542 from an earlier ₹567.

“We are cutting CIL’s volume by 1 per cent YoY each in FY25/FY26 to 784mt/823mt to factor in weakness in volume until Aug-24. This, along with muted prices, compel us to reduce FY25E/26E EBITDA by 4%/4.5%,” said Nuvama in its report.

The firm further went on to say, “Global thermal coal prices at $130/ton were up 6 per cent MoM owing to limited supply amid monsoons. Going ahead, we believe the Indonesian thermal coal price shall decline as monsoons are about to end resulting in an improved coal supply. The elevated supply coupled with softening demand shall lead to oversupply thereby keeping e-auction prices under pressure.”