Coal in India: Cost Control, Accounting Changes Raise Investor Optimism

The quarterly results resulted in a significant improvement in profits, with ICICI Securities analysts raising their EPS (earnings per share) estimates for fiscal years 2025 and 2026 by 17% and 15%, respectively.

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The change in accounting policy relates to stripping or surplus removal activities, and the related entries are recorded back to the income statement. This reclassification has led to a significant revision in earnings estimates.

“Based on our operating forecasts, and after taking into account the changed accounting policy for mining costs, our EBITDA and EPS estimates will increase by 15% and 14%, respectively, in fiscal 2025,” said analysts at Emkay Global Financial Services.

Analysts at Motilal Oswal Financial Services have raised their FY25 and FY26 net profit estimates by 11% and 3%, mainly due to higher-than-expected business reversals (OBR), while maintaining their EBITDA forecast. The company wrote off ₹5,602 crore in fiscal 2024 and Q1 fiscal 2025, with ₹As per the profit statement, there was still Rs 60,311 crore left at the end of the June quarter, which needs to be adjusted over the years.

Apart from the reclassification, Coal India is benefiting from growing energy demand, most of which will be met by coal-fired power plants. About 29 GW of coal-fired power plants are under construction, which would add 14% to existing capacity, increasing demand for coal.

The company’s volumes are expected to reach 1 billion tonnes in the next four years, up from 774 million tonnes in FY2024, growing at around 8% compound annual growth rate (CAGR). The growing share of volumes in the unregulated sector, including steel and trading, both of which are not covered by fixed-rate contracts, will help improve combined realizations. In Q1 FY25, volume growth of 6% was driven by sales to these segments.

However, sales via electronic auctions remain a problem due to lower realizations. Prices at electronic auctions fell by about 36% year-on-year to ₹2,411 per tonne in Q1FY25, although still 48% higher than fixed-price contract rates. E-auction rates peaked at ₹6,062 per tonne in the second quarter of fiscal year 2023 due to severe shortage of coal.

Coal India is also expanding its operations into other mineral resources and has been declared the preferred bidder for a graphite mining block in Madhya Pradesh.

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The company’s shares are trading at about eight times estimated fiscal 2025 earnings, implying a gain of about 38% this year, but that is significantly lower than mining peers such as Vedanta Ltd, which has gained 70%.