While analysts expect volumes to catch up moving forward, with monsoon flooding now behind, most are cutting their volume estimates for FY20. Analysts at Motilal Oswal, while expecting a recovery in volume growth for the remaining five months of FY20, are expecting a flattish volume of 610 million tonnes (mt) for FY20. Even ICICI Securities, which has cut its FY20 estimate to 600 mt, has lowered its FY21 volume estimate to 625 mt from 650 mt earlier. Given that CIL had seen a volume offtake of 609 mt during FY19, its performance in the current financial year is expected to be muted.
These concerns also remain elevated if you look at the country’s weak power demand pulling down overall coal demand, with muted requirements from thermal power plants. This situation adds to the worries, as second half of last year had seen a surge in power sector demand, driving CIL’s volumes and also its e-auction prices.
Though higher sales to non-power sector buyers are more profitable, the international prices, declining currently, are pulling down e-auction prices. During the September quarter, while coal sales to power plants based on fuel supply agreements (FSA) were down 12 per cent year-on-year to 104 mt, e-auction sales rose 30 per cent to 15.5 mt. But, as e-auction realisations, which are market-linked, declined by about 15 per cent annually (down 6 per cent sequentially) to about Rs 2,019 a tonne, it capped benefits from higher volumes.
Meanwhile, the government is also trying to fast-track coal mine auctions for merchant mining. This is adding to the concerns that Coal India
might face competition from private miners, even as the start of commercial coal mining may have a limited initial impact, as development and ramp-up of production from new mines take time.
The only solace is that the correction has made stock valuations attractive. A dividend yield of 5 per cent can limit the downside for the stock, says Elara Capital’s Rupesh Sankhe. However, the jury is out on this.