Coal India Limited (CIL) had a rough market debut for its Q2 earnings on October 28, with shares plummeting over 5% in morning trading following disappointing results. The coal mining giant reported a 22% year-on-year decline in consolidated net profit, amounting to ₹6,274.8 crore for the quarter ending September 2024, down from ₹8,048.64 crore in the same period last year. Revenue also took a hit, dropping to ₹32,177.92 crore from ₹34,760.3 crore a year prior. This downturn was primarily attributed to decreased coal demand, adverse weather conditions affecting mining operations, and intensified competition within the sector.
The company’s EBITDA witnessed a significant decline of approximately 20% year-on-year, driven by softened coal prices and stagnant sales volume growth, which rose by just 1% in the first half of FY25. A report from Nuvama Institutional Equities pointed out that CIL’s strategy to boost sales through e-auctions could further suppress prices, leading them to revise their target price for the stock down from ₹542 to ₹517, while maintaining a “hold” rating.
Despite these short-term challenges, CIL has set ambitious capital expenditure plans, projecting ₹15,000-20,000 crore annually over the next four to five years. About 40% of this investment will focus on non-coal initiatives, including thermal and solar power projects, coal gasification, and fertilizer plants. Nuvama cautioned that while these investments are strategically important, they may negatively impact the company’s return ratios in the near term.
In contrast, Emkay Global maintains a more optimistic outlook, retaining a “buy” rating with a target price of ₹600. They anticipate a recovery in the second half of FY25, emphasizing CIL’s crucial role in India’s energy landscape. Similarly, PhilipCapital supports this positive sentiment, holding a “buy” rating with a target price of ₹605. They project that CIL will meet a significant portion of the anticipated increase in coal demand over the coming years, although they adjusted their FY25/FY26 volume forecasts downward by 3% due to lower offtakes in the first half of FY25.
In addition to its earnings report, CIL announced an interim dividend of ₹15.75 per share for FY2024-25, payable on November 24, 2024, with a record date set for November 5, 2024. This move highlights the company’s commitment to rewarding shareholders amid recent market volatility. Following the earnings announcement, CIL shares traded at ₹439.2 on the NSE, reflecting a 4.75% decrease from the previous day’s closing price. Over the past two weeks, the stock has dropped 6.46% and has seen an 8.73% decline over the last month, indicating broader market challenges and sector-specific pressures.
However, on a year-to-date basis, CIL’s stock has shown resilience, rising 20.78% due to robust performance in the first quarter. Over the last three years, the stock has surged by 164.88%, while the five-year gain stands at 124.08%.
Moreover, CIL has announced plans to exit its wholly-owned subsidiary, CIL Solar PV Limited, which was established to explore opportunities in the solar sector. This decision is attributed to competitive pressures from established solar players and regulatory challenges, particularly regarding restrictions on imported solar technology. The exit process is expected to take 8-10 months to complete. Despite this, CIL remains committed to exploring non-coal investments under its capital expenditure plan, aiming to mitigate long-term risks while addressing India’s growing energy demands.
Disclaimer: The information provided in this report is for informational purposes only and should not be considered as financial advice. It is based on publicly available data and sources believed to be reliable at the time of writing. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author and the publisher do not assume any liability for any losses or damages arising from the use of this information.
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