Why Coal India Shares Are Rallying
Shares of Coal India Ltd. gained for the third straight session and hit a 52-week high, riding on the momentum from higher e-auction premium, increase in demand by power plants and a potential price hike.
The stock has gained as much as 4.8% on Thursday and 9% in the last three sessions, according to Bloomberg data. So far in September, shares of the world’s largest miner of the fossil fuel have jumped 15% compared with a 2.5% fall in the benchmark Nifty Metal Index. The average of the Bloomberg consensus 12-month price target implies an upside of 3.5%.
Here’s what aiding Coal India’s rally…
E-auction volumes jumped to the highest in five months in August at 18 million tonnes, while premiums at 46% were the most since March 20, according to Coal Mint data. The average e-auction premium was at 21% in the quarter ended June 2021.
Higher premiums, Credit Suisse said, are likely to sustain in the near term since the impact of a hike in Indonesian coal prices, which have doubled to $80 per tonne since March 2021, has only been witnessed now
Coal India’s offtake rose 9% over the year earlier to 48.6 million tonnes in August, according to exchange filing. So far this fiscal, offtake growth was at 24.8%, partly because of a low base.
The miner, Edelweiss Securities said, should be able to achieve FY22 offtake target of 637 million tonnes.
Coal India’s inventory, too, has dropped by more than half compared with March. Stocks at the company’s pitheads, a media statement said, fell to about 47 million tonnes as of August 2021 compared with a peak of 97 milllion tonnes as of March.
RK Singh, union minister for power, new and renewable energy, according to a PIB release, said energy consumption in August 2021 (129.5BU) has increased 15% compared with the corresponding period in 2019. The share of thermal and lignite-based generation, the release said, increased 21%.
Singh, the PIB statement said, has also advised the subsidiaries of Coal India to adhere to the targets given to them for September 2021, and make all-out efforts to ramp up production so as to gradually build up stocks at power producing units.
Potential Price Hike
The Maharatna public sector unit is likely to hike coal prices by 10-11% to account for increased costs and an impending wage revision, PTI reported citing people aware of the development.
The report, quoting Pramod Agarwal, chairman and managing director at Coal India, has said costs of the miner have jumped and “there is no reason” that it should not increase prices of the dry fuel. The company had last hiked prices in 2018. The revision, it said, is likely add Rs 10,000 crore to the company’s Rs 500-crore wage bill.
Coal India didn’t immediately respond to BloombergQuint’s emailed queries.