Nuvama Institutional Equities has downgraded Coal India Ltd (CIL) to ‘Reduce’ from ‘Hold’, citing continued earnings pressure due to weak power demand, lower e-auction prices, and rising competition from captive coal miners. The brokerage has revised its target price to ₹367 from ₹405 earlier, valuing the stock at 5x FY27E EV/EBITDA.
Coal India has started FY26 on a soft note, with sales volume declining ~4.7% year-on-year during April–May 2025. Nuvama expects this trend to continue through June, as overall power demand fell 1.6% YoY during the pre-monsoon period, and captive coal players continue to gain share.
Data from the Ministry of Coal shows that volume from captive and commercial mines rose 14.5% YoY to ~35 million tonnes in April–May 2025, capturing ~20% of demand, up from 17.5% in the same period last year. During FY25, captive players consumed 197 million tonnes, growing 31% YoY. With captive mine capacity peaking at 575 mtpa, Nuvama sees even Coal India’s 2–3% volume CAGR target at risk.
Nuvama has trimmed its volume estimates by 2% for both FY26 and FY27 to 770 mt and 793 mt, respectively — implying just 2% CAGR over FY25–27.
High inventory, rising costs to impact margins
Coal India’s coal inventory at end-May 2025 stood at ~112 million tonnes, significantly above the five-year average of 83 million tonnes, restricting any meaningful production increase. Management has guided for a rise in the stripping ratio to 2.67x in FY26 (vs 2.58x in FY25), which will push cost of production (CoP) higher due to increased overburden removal without corresponding volume growth.
Nuvama expects CoP to grow at 4% CAGR to ₹1,422 per tonne by FY27, factoring in wage revision-related cost increases in FY27. Limited operating leverage from stagnant production will further weigh on earnings.
Lower e-auction realisations add to pressure
Adding to the challenges is the continued decline in e-auction realisations. Benchmark Indonesia thermal coal (6323 kcal) prices have dropped to USD 115/t, down from earlier highs, and Nuvama believes further downside is possible.
Coal India’s e-auction prices have dropped from ₹2,615/t in Q4FY25 to ₹2,200–2,300/t currently. The brokerage now factors in an average realisation of ₹2,200/t in FY26 and ₹2,100/t in FY27.
Despite these headwinds, Coal India’s high dividend yield (~6%) remains its only bright spot. However, Nuvama noted that it prefers growth-focused opportunities, which are currently lacking for Coal India. The brokerage expects EBITDA to fall at a 2% CAGR over FY25–27, reinforcing its cautious stance.
Disclaimer: The views and target prices mentioned are as stated by Nuvama and do not represent the opinions or recommendations of this publication. Investors are advised to consult their financial advisors before making any investment decisions.
