Why Coal India Share Price is Rising

Monopoly stocks establish formidable market dominance for their products and services, creating challenging barriers for potential competitors.

These stocks have built their defences through a combination of substantial capital investments, intricate business advantages, and at times, even governmental restrictions.

These layers of protection have enabled them to not only maintain the highest market share for their products and services but they also consistently outperform peers.

As the broader market continues its upward trajectory, these companies have witnessed their stocks soaring to new heights, captivating the attention of investors. One of them being Coal India.

Shares of state-owned Coal India have rallied over 20% in the past five days, even as there was a huge correction in broader indices during the week.

This shows strong resilience and momentum building up.

Here's why Coal India shares are rising...

#1 Massive Rs 247.5 billion Capex Plan!

In September 2023, the state-run company announced its plan to spend nearly Rs 247.5 bn as part of its capital expenditure, on 61 First Mile Connectivity (FMC) projects.

This investment will span out over the next couple of years to boost eco-friendly coal transportation.

The company said that these projects will be set up in three phases and have a combined capacity of 763.5 million tonnes per annum (MTPA) on completion.

This massive effort by Coal India didn't go unnoticed by investors as it gained over 20% in the past five days, marking the highest weekly gain since its initial public offering (IPO) back in 2010.

#2 Production growth

On Tuesday, 1 August 2023, Coal India reported a 13.4% year-on-year increase in coal production, reaching 53.6 million (m) tonnes in July 2023. This figure marks a rise of 6 m tonnes from July's output of 47.3 m tonnes the previous year.

During April-July 2023, CIL's production reached a total of 229.1 m tonnes, reflecting a substantial 10.7% growth compared to the 207 m tonnes produced in the same period of 2022.

July 2023 saw CIL's total coal supplies peak at 58.3 m tonnes, indicating a robust growth of 7.2% compared to the 54.4 m tonnes supplied in July 2022.

Over the April-July 2023 period, supplies across all consumer sectors amounted to 244.5 m tonnes, marking a 5.7% increase over the 231.2 m tonnes supplied during the same period in the previous fiscal year.

Coal supplies to coal-fired plants reached 201.5 m tonnes by July in the current fiscal year, exhibiting a 1% comparative growth.

In order to ensure a comfortable buffer for domestic coal-based plants, coal stocks stood at 33 m tonnes at the end of July, nearly equivalent to the beginning of the year, indicating minimal contraction.

The coal PSU has set a target to produce 780 MT of coal in FY24.

#3 Overseas mineral asset acquisition

In a strategic endeavor to diversify its operations and integrate further into the value chain, Coal India, on 31 July 2023, announced its plan of targeting the acquisition of lithium, cobalt, and nickel assets abroad.

The company has recently amended its Memorandum of Association (MoA) to include non-ferrous and critical minerals, indicating its commitment to expand its presence in new sectors.

In the past, the miner's attempt to acquire coal assets aboard did not fructify. In its pursuit of overseas assets, CIL is currently identifying suitable opportunities for mergers and acquisitions.

This strategic initiative underscores the company's aspiration to ensure a reliable supply of these crucial minerals in support of India's Atmanirbhar mission.

Update: In August 2023, reports stated that miners who discover critical and deep-seated minerals in India could soon be entitled to revenue shares from the mining blocks over the span of a 50-year lease period.

This is big news for Coal India as it's the largest mining conglomerate in India.

While all this is speculative in nature, we could see more developments around this in the coming weeks.

While the road ahead to escaping the dependence on China and other countries for critical minerals is very long, strategic partnerships and Critical Investment Partnerships seem to be the key to achieving a stable supply of these critical minerals.

And of course, focusing on unearthing India's complete mineral wealth.

All in all, Coal India remains at the centre of all this.

Strong growth prospects

Coal India has outlined a substantial capital expenditure plan, revealing its intention to invest Rs 166 billion in the fiscal year 2023-24.

Expanding its horizons, Coal India has entered into two Memoranda of Understanding (MoUs) to venture into the thermal power sector.

The first MoU establishes a collaborative effort between Southeastern Coalfields Limited (SECL) and Madhya Pradesh Power Generating Company Limited (MPPGCL) for the establishment of a 1x660 MW supercritical thermal power station, intended to replace retired generating units.

Simultaneously, another initiative involves the setup of a 2x800 MW supercritical thermal power plant in Odisha.

CIL has also formed joint ventures (JVs) with prominent entities including the National Thermal Power Corporation (NTPC), Indian Oil Corporation Limited (IOCL), and Gas Authority of India Limited (GAIL), among others.

These partnerships are designed to mitigate technological and financial risks inherent in diversification endeavors, while also capitalising on the specialised expertise of its business collaborators.

Also, with power demand expected to triple by 2040, fossil fuels, particularly coal, are poised to see continued growth even as the clean energy market thrives.

Coal India being the largest domestic producer, is set to benefit from it.

To dwell deeper, check out Rahul Shah's detailed editorial on Coal India. It explains why the bluechip stock could offer great returns in 2023.

How Coal India shares have performed recently

Coal India shares have gained 27% in the past 6 months. So far in 2023 the stock is trading up by 25%.

The company touched its 52-week high of Rs 285 on 11 September 2023 and its 52-week low of Rs 208 on 27 March 2023.

At the current price, the stock is trading at a PE multiple of 11.1 and a price-to-book value multiple of 10.3.

About Coal India

Coal India was incorporated in 1973 as Coal Mines Authority after the nationalisation of the coal sector.

It was reconstituted as a formal holding company with the present name in November 1975.

The company has eight wholly owned Indian subsidiaries: Bharat Coking Coal, Central Coalfields, Eastern Coalfields, Western Coalfields, Northern Coalfields, Mahanadi Coalfields, South Eastern Coalfields, and Coal Mines Planning and Development Institute.

It has a wholly owned subsidiary in Mozambique, Coal India Africana.

Coal India was conferred the Maharatna status by the Indian government in April 2011. The status provides operational and financial autonomy.

Additionally, seven of its nine wholly owned subsidiaries have been accorded the Miniratna status, leading to decentralisation of operations and decision-making.

In October 2010, the government divested 10% stake in Coal India for Rs 154 bn through an initial public offering (IPO).

Over the years, the government has divested stake through offer for sale (OFS), by way of placement of shares in Central Public Sector Exchange Traded Fund and buyback of shares through offer for sale.

For more details about the company, check out Coal India company fact sheet and quarterly results.

You can also compare Coal India with its peers.

Coal India vs NMDC

Coal India vs Vedanta

Coal India vs MOIL

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