Coal India, the state-owned coal producer, has found itself in the spotlight after a notable 12% year-on-year drop in output. The decline is attributed to extended monsoon rains in coal-rich states such as Odisha, Jharkhand, and West Bengal. This development comes at a time when the company’s stock has surged by an impressive 94% over the past year.
Analysts and investors alike are now split in their evaluations, with a variety of recommendations from leading brokerage firms. For those looking to buy shares online, it’s essential to understand both sides of the argument surrounding Coal India's performance and prospects.
Erratic monsoons impact production
The sharp dip in output has been largely attributed to erratic monsoons, which severely affected mining activities. The states hit hardest by the heavy rains are among India’s key coal producers. Analysts agree that the adverse weather conditions have slowed down volume growth, and Coal India's output numbers reflect this impact.
The company, however, has set an ambitious target of 838 million tonnes (MT) of production by FY25, signalling optimism about future growth once weather conditions stabilise.
Split analyst views: buy or sell?
Coal India’s future prospects have drawn mixed reactions from leading brokerages. While Motilal Oswal and JM Financial maintain their 'buy' ratings on the stock, Nuvama has urged caution, recommending a 'sell on rise' strategy. According to Motilal Oswal, India's push towards becoming a $5 trillion economy will increase the demand for thermal power, further boosting Coal India's growth in the coming years.
The brokerage has backed its recommendation with a target price of Rs 600 per share, stating that Coal India's strategic focus on e-auctions and reduced costs will support this growth. JM Financial echoed similar sentiments, highlighting the stabilisation of Coal India’s e-auction prices at Rs 2,300-2,500 per tonne. The firm remains confident in Coal India’s long-term prospects, especially with the company’s goal of achieving its production target by FY25.
On the other hand, Nuvama points to significant risks that may affect Coal India’s future performance. These include falling international coal prices, a potential slump in e-auction prices, and lower-than-expected volume growth. Additionally, Nuvama has raised concerns about the possibility of the Government of India selling its stake in Coal India through an Offer for Sale (OFS), which could affect investor sentiment.
Stock performance amidst mixed ratings
Despite the mixed ratings from brokerages, Coal India’s stock has continued to perform well. As of the latest figures, the stock was trading 1.2% lower at Rs 497.20 on the National Stock Exchange (NSE). However, the broader picture remains highly positive, with the stock having gained around 30% year-to-date.
This surge has outperformed the Nifty index, which has delivered a 15% return in the same period. Over the past 12 months, Coal India's stock has skyrocketed by 94%, significantly outpacing the Nifty’s 28% rise.
Is now the time to buy?
The sharp rise in Coal India’s stock price, coupled with mixed ratings from analysts, paints a complex picture for potential investors. While there are strong arguments for the stock’s growth, particularly from those optimistic about India’s continued reliance on thermal power, the risks highlighted by Nuvama cannot be ignored. For those interested in the stock, now may be an opportune time to evaluate whether to buy shares online, factoring in both the potential rewards and risks of investing in Coal India.
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