Coal India share price up 10% in 5 days; a stock to bet on as India’s power demand gets back on track?

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Published: May 29, 2020 12:55 PM

A heatwave spreading across north India and the steady resumption of economic activity has caused a sharp spike in the country’s energy consumption, with this Coal India’s share price has also surged 10% in the last five days.

mining, automation, digitisation, safety in mining, villagers resist automationDispatches for coal have increased over the past one week, as power demand recovers and factories restart operations.

A heatwave spreading across north India and the steady resumption of economic activity has caused a sharp spike in the country’s energy consumption, with this Coal India’s share price has also surged 10% in the last five days. According to Morgan Stanley research, the daily energy consumption in India is now closer to 2019 levels. Resumption of economic activity and revival in energy consumption is being dearly eyed by Coal India’s management, as highlighted in a conference call the firm recently held. As the benchmark indices traded in the red on Friday, Coal India shares jumped 3% to trade at Rs 138 per share.

Coal India has trimmed production with the build-up in inventory stocks across mines and power plants. However, the company said it is committed to resume production once demand picks up. Dispatches for coal have increased over the past one week, as power demand recovers and factories restart operations. Offtake is now being recorded at 1.35mnte per day from 1.1mnte per day, recorded last month. The firm’s production target was set at 710mnte for the current fiscal year which is being re-evaluated.

The future could also be bright for Coal India as the company aims to substitute 100mnte thermal coal imported by Indian, which can help improve off-take.  18mnte of coal has been auctioned till date for imported coal substitution, and another 20-25mnte is lined up. This will also help the company become more competitive. Brokerage and research firm Edelweiss Securities said that the Rs 20/share dividend payout from Coal India looks highly unlikely as the firm stares at a huge cash outgo under the ‘Vivaad se Vishwas scheme. Edelweiss expecs a dividend of Rs 12 per share.

“Large proportion of COAL’s costs is fixed in nature with employee costs accounting for ~50% of the company’s expenses. Further, with the company focusing on OBR removal activities, COAL would continue using contractual employees, in our view,” said Brokerage firm Motilal Oswal in a report. Motilal Oswal has a buy rating on the stock with a target price of Rs 195. A fall in international coal prices could pose a major risk for the company, according to ICICI Securities while cutting its target price to Rs 264 per share from the earlier Rs 284. The brokerage has trimmed profit estimates for the fisal by 16%. 

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