Coal India Ltd: Strong Potential, 30% Below ATH, Best Long-Term Picks
Business and Industry Overview
Coal India Limited (CIL) is the world’s largest coal producer. It was established in November 1975 & is classified as a ‘Maharatna’ enterprise under the Ministry of Coal, which means it has operational and financial autonomy. The company is headquartered in Kolkata and operates across eight Indian states. It has a total of 313 active mines, including 131 underground, 168 opencast, and 14 mixed mines. CIL has twelve subsidiaries and five joint venture companies that oversee the coal production across India.
India aims to achieve a $5 trillion economy by 2025–26, with the coal sector playing a crucial role in ensuring energy security and driving economic growth, particularly in support of the thermal power sector. As the second-largest coal producer in the world, India produced 997.25 million tonnes (MT) of coal in 2023-24, reflecting an 11.65% increase. Coal India Limited contributed 773.647 MT, achieving a growth rate of 10.02%, while the Singareni Collieries Company Limited produced 70.02 MT, with a growth rate of 4.30%. Increased coal demand is anticipated from the electric vehicle sector and the chemicals industry as well.
India may be pushing for a greener future, but coal still powers 72% of its electricity needs. As global narratives focus on renewables, coal is still responsible for 49% of India’s installed power capacity and generates over 70% of the country’s electricity. Coal India Limited (CIL) is the largest coal producer globally, supplying around 82% of India’s coal output and fulfilling 40% of energy needs. India is also working to minimise coal imports, with thermal coal imports decreasing by about 2% in 2024 due to enhanced domestic production and high inventory levels. Geopolitical factors are affecting global coal trade, with potential increases in U.S. coal exports to India. Despite ongoing efforts to diversify energy sources, coal continues to be a key component of India’s energy strategy, especially in the context of economic growth and environmental considerations.
Latest Stock News
Southeastern Coalfields Limited (SECL), a subsidiary of Coal India Limited, has increased its budget for corporate social responsibility (CSR) activities, allocating ₹170 crore for the fiscal year 2025. This is an increase from the previous statutory budget of ₹99.76 crore. SECL operates 64 coal mines, with 39 located in Chhattisgarh and the remainder in Madhya Pradesh. The funding will primarily focus on improving health, education, and skill development in the region, with projects expected to be implemented over the next 2 to 3 years.
Additionally, SECL signed a Memorandum of Understanding (MoU) worth ₹77 crore in 2025 for these initiatives. Among the notable projects is the provision of a 3.0 Tesla MRI machine for the Late Bisahu Das Mahant Memorial Medical College in Korba, which will cost approximately ₹28.08 crore. SECL is also earmarking ₹30.92 crore in financial assistance to the Vidisha district administration in Madhya Pradesh to address malnutrition and stunting, as well as screening for anemia and sickle cell anemia.
In the October to December quarter of the financial year 2024-25, Coal India reported a net profit of ₹8,491.22 crore, reflecting a 17.5% decline compared to ₹10,291.71 crore in the same quarter the previous year.
On a sequential basis, the profit after tax (PAT) surged by 35% compared to the ₹6,289 crore reported in the second quarter of FY25. The company’s topline also increased by 17%, rising from ₹30,672 crore in the July-September quarter.
On Monday, the state-run miner announced a 17% year-on-year decrease in its consolidated net profit for the December quarter, which stood at ₹8,506 crore compared to ₹10,253 crore in the same period last year. However, the profit after tax exceeded market expectations, which were estimated at ₹8,083 crore.
Potentials
CIL’s coal production increased by 2% from last year to 543 million tonnes, but land issues and heavy rainfall affected growth. As a result, CIL has lowered its production target for FY25 to about 806 million tonnes, down from an earlier estimate of 838 million tonnes. Despite this, CIL aims to reach a target of 1,000 million tonnes by FY27, with a growth rate of about 6% annually to reach 925 million tonnes.
CIL is also expanding its business beyond traditional coal mining. It is working on coal gasification projects with BHEL and GAIL, supported by about ₹1,350 crores in financial incentives for each project. CIL has signed an agreement with BPCL to create a coal-to-synthetic natural gas project and is investing in thermal power generation and renewable energy projects like Mahanadi Basin Power Ltd. Additionally, CIL is exploring opportunities to acquire and mine critical minerals in both domestic and international markets. These initiatives are expected to benefit CIL in the long run.The company is nearly debt-free.
Coal India is anticipated to report a year-on-year (YoY) decline in its net profit for the quarter ending December 2024, primarily due to reduced realizations from weaker e-auction premiums. The board of directors will meet today, January 27, to review and approve the financial results for the third quarter of FY25.
While a YoY drop in net profit is expected, there may be sequential growth compared to the previous quarter. Revenue for Q3 FY25 is projected to decrease YoY but increase sequentially. Flat volumes, lower blended realizations, and a slight rise in costs are expected to negatively impact operating profit.
Additionally, Coal India’s board may consider declaring the second interim dividend for the fiscal year 2024-25. The record date for the dividend is set for January 27, 2025. Ahead of the Q3 results announcement, Coal India’s share price was trading down by one percent on Monday.
Analyst Insights
The market capitalisation of Coal India Limited stands at ₹2,20,472 crore. The stock has a price-to-earnings (P/E) ratio of 6.34 and a book value of ₹156. Investors can expect a dividend yield of 7.19%. Additionally, the return on capital employed (ROCE) is an impressive 63.6%, while the return on equity (ROE) is 52.0%.The stock offers a solid dividend yield of 7.14%. The company has an impressive track record of return on equity (ROE), with a 3-Year ROE of 52.8%. Additionally, it has maintained a healthy dividend payout ratio of 49.8%.
Coal India presents a strong investment opportunity with a dividend yield of 7.19%, making it attractive for income-focused investors. Its low P/E ratio of 6.34 suggests that the stock may be undervalued compared to its peers. The company’s high return on capital employed (ROCE) of 63.6% and return on equity (ROE) of 52.0% reflect efficient capital utilization and strong profitability. Additionally, Coal India has a consistent dividend payout ratio of 49.8%, providing stable returns for investors.
However, there are potential risks to consider. Being a public sector unit (PSU), Coal India is dependent on government policies, which exposes it to regulatory risks. Furthermore, environmental concerns and the ongoing transition to renewable energy sources pose long-term risks for coal demand. The cyclical nature of commodities also means that prices and demand for coal can fluctuate significantly.
In conclusion, the recommendation is to BUY if you are a dividend investor looking for stable cash flows and undervalued stocks. Alternatively, consider HOLDING if you already own the stock, as its fundamentals remain strong but long-term risks are present.