Shares of Coal India Ltd rose 3% after the company reported impressive June quarter results on Thursday. Adjusted Ebitda for Q1FY25 exceeded forecast by 13%, thanks to lower employee costs, while net profit saw a sharp rise due to accounting policy changes and reversal of previous provisions.
The quarter’s performance has led to significant earnings upgrade, with analysts at ICICI Securities raising its EPS (earnings per share) estimates for FY25 and FY26 by 17% and 15%, respectively.
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The change in accounting policy pertains to stripping activity or overburden removal, with related provisions being written back to the income statement. This reclassification has led to a significant revision in earnings estimates.
“On the basis of our operational forecasts as well as incorporating the revised accounting policy for stripping cost, our Ebitda and EPS estimates increase by 15% and 14% respectively, for FY25,” said analysts at Emkay Global Financial Services.
Analysts at Motilal Oswal Financial Services have raised their net profit estimates for FY25 and FY26 by 11% and 3%, primarily due to higher-than-expected overburden removal (OBR) reversals, while maintaining the Ebitda guidance. The company has written back ₹5,602 crore during FY24 and Q1FY25, with ₹60,311 crore still remaining at the end of the June quarter to be adjusted over the years, according to the earnings statement.
Beyond the reclassification, Coal India is benefiting from rising power demand, much of which will be met by coal-based power plants. About 29 GW of coal-based power plants are under construction, which would increase existing capacity by 14%, boosting coal demand.
The company’s volumes are projected to reach 1 billion tonnes over the next four years, up from 774 million tonnes in FY24, growing at about 8% compound annual growth rate (CAGR). An increasing share of volumes to the non-regulated sector, including the steel industry and traders, both of which are not under fixed-rate contracts, will help improve blended realizations. In Q1FY25, a 6% volume increase was driven by sales to these segment.
However, sales through e-auction remain a concern due to lower realizations. E-auction prices dropped about 36% year-on-year to ₹2,411 per tonne in Q1FY25, though still 48% higher than fixed price contract rates. E-auction rates had peaked at ₹6,062 per tonne in Q2FY23 due to a severe coal shortage.
Coal India is also diversifying into other minerals and has been declared the preferred bidder for graphite mining in a block in Madhya Pradesh.
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The stock is trading at about eight times FY25 estimated earnings, having gained around 38% this year, but much lower than mining peers like Vedanta Ltd, which is up 70%.
