Low offtake drags CIL shares 26% in a year

If you would have put money in Coal India a year ago, by now almost 26 per cent of the value of that investment would have been wiped out. Its share price has fallen to ₹313.15 on June 30, from ₹421.05 on the same date a year ago.

Despite achieving record levels of output growth, Coal India has underperformed in the stock markets as the S&P BSE Sensex fell only 3.7 per cent in the past one year.

Market analysts say while the long-term health of CIL is stable, in the short to medium term, concerns are emerging about the slow growth in demand for coal and the company’s plans to diversify into unrelated areas such as fertilisers. “CIL has had to restrict production in the first two months of the fiscal.

“We estimate the pit-head inventory of coal to be at nearly 50 million tonnes and another 25-30 million tonnes at power plants. The pace of supply is much faster than the demand growth rate. Even in the coal linkage auctions, quantities were left unsold and most that was bought was at notified prices,” an analyst with a foreign brokerage firm told

CIL’s production in the first two months of 2016-17 grew at only 0.5 per cent to 82.93 million tonnes, coal offtake growth also slowed down to 1 per cent at 87.29 million tonne.

In the recently-held coal linkage or fuel supply agreement auctions for the sponge iron sector, the full quantity of 3.78 million tonnes per annum (mtpa) wasn’t sold. While this was attributed to weakness in the sponge iron industry, the auction for the cement sector has not fared much better. On Thursday, out of the 0.5 mt , only 0.18 mt was sold.

Some of the key risks pointed out by Edelweiss Research in a report on March 31 was lower-than-expected new fuel supply agreements. Analysts at Goldman Sachs had also stated earlier this year that weak coal demand outlook is a key overhang. The brokerage firm also cut its earnings per share estimates for Coal India.

However, Coal Ministry officials say, “This is short term. Coal demand is not growing at the rate at which supply is growing. Demand is growing at 4-5 per cent while supply is growing at 9-10 per cent. That is what is giving the illusion of low demand. If supply drops again there will be rush for coal. Plus, as and when UDAY kicks in, demand will again increase,” a senior official said.

Coal India’s planned investment for diversification into unrelated sectors, such as fertilisers is also being seen as a negative by the market. Officials said with CIL’s cash and cash equivalents at over ₹38,000 crore as on March 31, the investment in fertilisers is a way to utilise the cash which would otherwise be sitting in bank deposits.

“We have to utilise the cash; so, either we give higher dividends, make new investments or go in for buyback. By investing in fertilisers we are opening up another revenue stream for the future,” an official said.