Coal India Ltd. may fall short of its volume growth targets for fiscal 2025, according to Nuvama Research. Factors contributing to this potential shortfall include increased coal production from captive mines, delays in imports, and a heavy monsoon. Despite these challenges, Nuvama expects Coal India’s EBITDA to grow at a compound annual growth rate (CAGR) of 5% from fiscal 2024 to 2026, driven by an average volume growth of 5% during the same period.
The brokerage has maintained a ‘hold’ recommendation on Coal India, setting a target price of ₹567 per share. This target represents a 5.4% increase from Friday’s closing price.
Volume Growth Challenges
To meet its management’s guidance, Coal India needs to achieve a 15% year-on-year volume growth for the remainder of fiscal 2025. According to Nuvama, this target appears challenging. The brokerage forecasts Coal India’s volumes for fiscal 2025 and 2026 to be 791 and 831 million tonnes, respectively, compared to the management’s guidance of 838 and 905 million tonnes.
Furthermore, coal prices are expected to remain stable until fiscal 2026. Nuvama does not anticipate any increases in fixed supply agreement prices, while e-auction coal prices are expected to stay within a certain range.
Cost Management and Taxation Impact
On a positive note, Coal India’s management is confident about controlling costs. Nuvama reports that employee costs are expected to remain stable over the next two years due to a reduction in headcount.
In addition, the recent Supreme Court ruling allowing states to impose an additional cess on mineral royalties poses a significant liability for Coal India, estimated at ₹31,590 crore. However, Nuvama notes that over 80% of Coal India’s volumes are sold under fixed supply agreements, which could enable the company to recover approximately ₹24,000-25,000 crore from customers.