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Coal India has recovered almost all the losses following its soft June quarter (Q1FY27), as steep e-auction premiums have lifted investor sentiment. The stock has gained 4% over the past month, even as the benchmark Nifty 50 index has declined 5%. Morgan Stanley upgraded Coal India to ‘overweight’ this week and raised its target price to ₹480, implying 14% upside from current levels. The brokerage expects accelerating thermal power demand, sharply depleted power-plant inventories and rising global thermal coal prices to support both volumes and e-auction premiums. There are already signs of tighter coal markets. Coal India’s offtake rose to 60.6 million tonnes (MT) in August, taking fiscal year 2027 (FY27) year-to-date offtake to 323 MT, against its full-year target of 850 MT. Coal inventories at power plants fell to around nine days at the end of August, from about 19 days in March. That could support restocking demand, particularly if power demand remains strong. India’s power demand rose 13% year-on-year in August. Coal India’s operating performance was promising in Q1 as well. Coal offtake rose 4% year-on-year to 198 MT, driving a 7.8% increase in operating revenue to ₹46,255 crore. But profitability was muted as fuel and raw-material costs grew faster than revenue. Net profit was largely flat at ₹8,850 crore. Against this backdrop, early signs of a pickup in profitability are encouraging. Coal India’s e-auction premium rose to 59% over notified prices in August, compared with an average of 46% in FY27 so far. E-auctions allow the company to realize market-linked prices, while a large portion of its deliveries are locked into fixed prices under fuel supply agreements (FSAs). Another near-term tailwind is the drawdown in inventories. In the first five months of FY27 (April-August), production declined 4.5%, while offtake grew 6.7%. The gap was met by drawing down pithead inventories, with around 55 MT liquidated during the period, leaving roughly 76 MT. That has helped tighten the market and support higher realizations. Temporary tailwind But this boost to profitability could prove temporary. The longer-term outlook will depend on broader supply-demand conditions. Coal India is targeting 815 MT of production and 850 MT of offtake in FY27. As production recovers with the retreat of the monsoon, additional supply could ease the scarcity that is supporting e-auction premiums. E-auction volumes are declining too, falling to 8.3 MT in August from 13.3 MT in March. In Q1FY27, Coal India sold 31.1 MT through e-auctions at an average premium of 43%. While the premium has risen to around 50% on average in Q2FY27 so far, e-auction volumes have fallen to 16.7 MT. The proposed initial public offering of subsidiary Mahanadi Coalfields Ltd (MCL) adds another variable. Coal India plans to sell up to 10% of MCL through an offer-for-sale. MCL produced 218 MT in FY26, or about 28% of Coal India’s production. The listing could help unlock value, but Coal India would also retain a smaller economic stake in one of its most profitable subsidiaries. Over the medium to long term, investors will need to monitor production volumes, e-auction volumes and premiums, inventories and margins. At around 7.6 times FY28 earnings, according to Bloomberg consensus estimates, Coal India’s valuation offers some cushion against execution risks. Its trailing 12-month dividend yield of more than 6% provides another support.
document fetched 2026-09-26 02:50 · canonical https://livemint.com/market/mark-to-market/can-coal-indias-higher-realizations-sustain-the-recovery-in-the-stock-11790314767513.html