Coal India, the nation’s largest mining conglomerate, has experienced a remarkable resurgence, with its shares soaring 19 percent over the week, making it the top performer on the Nifty 50 index. This rally marked the highest weekly gain for Coal India since its initial public offering (IPO) back in 2010.
Here are the four key reasons for Coal India’s comeback:
Surge in thermal power generation
Despite the growing use of renewable energy sources, which accounted for 14 percent of the energy mix in the first five months of fiscal year 2024 (compared to 12 percent in the same period of fiscal year 2023), thermal power maintained its dominant position, making up approximately 73 percent of the total energy mix. On the other hand, hydropower generation experienced a 1.6 percent year-on-year decline and may continue to decrease in the second half of fiscal year 2024.
Robust operational performance
Coal India’s operational performance has been nothing short of stellar. In FY24, the offtake surged 8 percent, reaching 305.5 million tonnes (MT) compared to the previous year’s 283.1 MT.
August 2023, in particular, stood out with a 15 percent increase in offtake, registering 59 MT against the previous year’s 51.2 MT.
It is imperative to note that Coal India’s ambitious target for FY24 is set at 780 MT, as opposed to the previous year’s 703 MT. Even though some brokerages, like Nuvama, are conservatively estimating 745 MT, this robust operational performance dispels any lingering uncertainty regarding volume growth at Coal India and sets the stage for potential benefits derived from operating leverage.
E-auction prices on the rebound
As power plants need more coal, there’s a possibility that coal previously allocated for other uses might be redirected to meet power generation needs in the second half of fiscal year 2024. This could further boost e-auction prices.
Attractive Valuations
(Edited by : Shoma Bhattacharjee)
