Fundamental Analysis of Coal India: The share price of Coal India, the largest coal company in the world has returned an impressive 57% in the last two years. The gains come on the back of the rising Coal sales as the government pushes for more electricity penetration across the nation. But, is there more to it? Or all the rally is done and you are late to the party? In this article, we’ll try to know it by conducting a fundamental analysis of Coal India Ltd.

Fundamental Analysis of Coal India

We’ll begin the article by getting ourselves familiar with the business of the company. Next, we’ll do a quick SWOT analysis and read about India’s coal sector. After that, we’ll race through the financials of the stock and have a review of the future plans of the company. A summary concludes the article in the end.

Company Overview

Coal India Ltd. (CIL) is the largest coal company in the world. It is a Maharatna-status government company under the Ministry of Coal, Government of India. The central public sector undertaking was incorporated 48 years ago in 1975.

CIL is structured as a holding company owning 84 mining areas across 8 Indian states through its various subsidiaries. As of April 1, 2022, the company had 318 mines. 

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Coal India accounts for almost 80% of the overall coal produced in the country. The company matches 40% of the primary commercial power demand alone. Its scale of operations can be gauged from the fact that it produced a whopping 623 million tonne (MT) of coal during the FY 2021-22.

The mining and sale of coal is the main revenue stream for the company. Apart from this, the loading & additional transportation charges and evacuation facility charges form part of other operating income. In simple terms, these are logistics services that are provided to the customers of Coal India. The sale of coal accounted for 91.71% of the total operating income of the company in FY22. 

SWOT Analysis of Coal India

Strengths

  1. CIL enjoys economies of scale given its large scale of operations.
  2. Its huge coal resources and operations network is spread across the country helping it to cater to its customers easily.

Weaknesses 

  1. Coal India has high wages cost hurting its margins.
  2. Additionally, coal production is costly in underground (legacy) mines. 

Opportunities

  1. The company is putting efforts to diversify into the solar sector.
  2. Rural electrification and the Power for All UDAY scheme will increase the demand for energy in India significantly.

Threats

  1. Renewable energy production is one of the biggest threats to coal-based power generation.
  2. Land acquisition and the rise in the cost of land are other threats that can counter CIL’s efforts to produce more coal.

Industry Overview

India is the second largest coal producer in the world. The country produced 777.03 MT of coal in the financial year 2021-22. The government has a huge influence on the Indian coal industry with state-owned companies Coal India and Singareni Collieries Company. 

Talking about the demand, the energy sector in India is dependent on coal as 55% of the installed generation capacity is coal-powered. According to the Draft NITI Aayog Report (Nov’21) on “Coal Demand in India – 2030 and beyond”, the coal demand for power production will stay strong and even increase in the coming years as the nation plans to increase its energy production in the future.

However, the share of coal is projected to come down in percentage terms as the nation will move further towards renewable energy. The reduction of coal in India’s energy mix is estimated to shrink to 52% by 2030 (from 72% at present), 43% by 2035, and 34% by 2040.

India’s per capita annual power consumption at 1,276 in FY21 was much lower than even other developing countries like South Africa and Brazil. Thus, the overall power demand in India is expected to grow at a strong pace.

A variety of factors: rising living standards, higher electrical and electronic appliance penetration even across rural areas, more focus of the government on boosting the manufacturing sector’s contribution to GDP growth, construction of data centers, and better irrigation through electric pump sets in the agricultural sector will contribute to higher energy demand in the years to come.

Coal India – Financials

Revenue & Net Profit Growth

The operating revenue and profits of Coal India have grown inconsistently over the last six years. The top line expanded by 22% in FY22 to Rs 109,714 crore from Rs 90,026 crore last year. The bottom line grew by 37% during the same period to Rs 17,378 crore.

The earnings momentum is picking up. For instance, the trailing twelve-month (TTM) income and net profit after the December 2022 quarter results stood at Rs 132,806 crore and Rs 29,312 crore respectively.

The table below shows the operating revenues and net profits of Coal India for the previous six financial years.

Fiscal yearOperating revenueNet Profit
2022109,71417,378
202190,02612,702
202096,08016,700
201999,58617,464
201887,2697,020
201783,9999,282
(figures in Rs Cr)

Operating & Net Profit Margin

The operating and net profit margins have remained strong over the years for the mining company. However, FY18 margins were depressed on the account of a sudden increase in employee benefit expenses from Rs 33,523 crore in FY17 to Rs 42,634 crore.

The table below highlights the operating profit margins and net profit margins of Coal India for the past six fiscals.

Fiscal yearOPMNPM
202219.1417.27
202118.2015.36
202019.2218.69
201921.6518.80
201817.028.04
201722.6611.05
(figures in %)

Return Ratios: RoCE & RoE

Moving on to the efficiency analysis, Coal India is a profitable business with a high return on equity and return on capital employed. There is a significant discrepancy between the RoE and the RoCE figures because of various other provisions forming part of the non-current liabilities.

The table below shows the RoCE and RoE of Coal India for the last five years.

Fiscal yearRoERoCE
202243.6519.25
202137.0116.14
202057.0222.60
201974.9629.53
201831.510.96
(figures in %)

Debt/Equity & Interest Coverage

Having covered the business, industry landscape, and P&L metrics of the company, we’ll now do a quick leverage study as part of our fundamental analysis of Coal India. It is largely a debt-free stock with a negligible debt-to-equity ratio and a high-interest coverage ratio. 

Furthermore, being a government miner in the energy sector, the company enjoys a strong credit rating of  CCR AAA/Stable from CRISIL.

The debt-to-equity ratio and interest coverage ratio of Coal India for the past few years are presented below.

Fiscal yearDebt / EquityInterest Coverage
20220.0852.81
20210.1628.94
20200.2048.87
20190.0899.62
20180.0825.84

Future Plans of Coal India

So far we looked at the past years’ data as part of our fundamental analysis of Coal India. In this section, we’ll try to make a sense of what lies ahead for the company and its investors.

  1. CIL has targeted a coal supply of 700 MT in FY 2022-23, a 13% jump over the FY22 figure.
  2. The ambitious goal of the Government of India to supply electricity to every home 24×7 by 2025 presents a huge opportunity for the company as this will result in the 1 billion tonnes (BT) annual production of coal by 2024-25.
  3. In line with its production goals, the CPSU has earmarked a large CAPEX of Rs 16,500 crore towards volume growth in the near future.
  4. Furthermore, Rs 20,000 crore worth of railway track projects are under execution already to increase the evacuation of coal.

Fundamental Analysis of Coal India – Key Metrics

We are now almost at the end of our fundamental analysis of Coal India. Let us take a quick look at the key metrics of the stock.

CMP₹218Market Cap (Cr.)₹135,500
EPS₹47.6Stock P/E4.6
RoCE19.25%RoE43.65%
Promoter Holding66.1%Book Value₹91.5
Debt to Equity0.08Price to Book Value2.39
Net Profit Margin17.27%Operating Profit Margin19.14%

In Conclusion

The increase in the sale of coal has definitely changed the fortunes of Coal India and its investors in the last two years. Interested investors will have to closely follow the offtake figures and CAPEX plans of the company to see where the stock is going. 

After going through our fundamental analysis of Coal India, do you think the company will be able to increase production in the coming quarters? What can be speed bumps for the stock? How about we continue our conversation in the comments below?

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