Shares of Coal India Limited, one of the largest state-owned coal companies globally, experienced notable activity on Friday, February 28, 2025. During the early hours of trading, the company's stock price rose by 3.27% to reach ₹375.75 per share on the National Stock Exchange (NSE), as broader market indices struggled.
This surge came on the heels of the announcement from Coal India's subsidiary, Northern Coalfields Limited (NCL), which declared plans to implement a new charge of ₹300 per tonne on coal dispatches starting May 1, 2025. This so-called 'Singrauli Punarasthapan (Rejuvenation) Charge' will be applied uniformly across all mines under its operation, aiming to augment revenue streams significantly.
According to regulatory filings, the newfound levy is projected to generate approximately ₹3,877.50 crore (around $477 million) for the company. Notably, NCL is Coal India's third largest subsidiary, contributing roughly 18% to Coal India's total sales volume with sales of around 138 million tonnes during the fiscal year 2024.
Coal India, which has maintained its Maharatna status since its establishment in November 1975, currently oversees operations across 84 mining areas spanning eight Indian states. The company holds the world's distinction as the largest coal producer and is one of the most significant corporate employers as well.
Despite the positive breakout stemming from the new charge, Coal India's stock remains subject to mixed market conditions. It achieved its 52-week high of ₹543.55 per share on August 26, 2024, only to hit its lowest point recently at ₹349.25 per share on February 17, 2025. Year-to-date, the stocks have depreciated nearly 4%, whereas the benchmark Nifty 50 index has faced larger losses of about 6% during the same timeframe.
While investor optimism swells due to the additional revenues, analysts warn of existing headwinds. A report from JP Morgan mentioned the 'positive surprise' of the fuel supply agreement (FSA) price hike, which could bolster earnings before interest, taxes, depreciation, and amortization (EBITDA) by 8-10%. Nevertheless, the brokerage maintained its neutral rating with revised target price of ₹420, emphasizing challenges like international pricing pressures and production inconsistencies.
Market observers suggest the imminent revenue from the Singrauli charge will be pivotal for financing land acquisition and rehabilitation projects, especially within the Singrauli mining area. This proactive approach might encourage other subsidiaries of Coal India to adopt price adjustments to bolster their revenues, especially since the last general price revision for the full volume of the FSA was back in January 2018.
Nuvama Institutional Equities also shared insights on this matter, noting the new charge will significantly contribute to planned expenditures for land rehabilitation efforts. They expressed concern over the stagnation of volume growth, which could limit overall earnings growth, following the modest year-to-date growth of 1.8% to 630 million tonnes for fiscal year 2025.
This consistent performance puts the company at approximately 7% dividend yield, based on the latest dividends per share (DPS) announcement of ₹25, offering investors some reassurance against major stock price declines.
Meanwhile, broader market performance reflected the challenging atmosphere, with the Bombay Stock Exchange (BSE) Sensex declining by 993 points to settle around 73,618 points as of late morning trade, and the Nifty 50 falling by 1.37% to 22,237 points. An adverse sentiment was prevalent across the board, affecting the trading environment.
On the global front, Coal India’s performance is also subject to the fluctuations of international thermal coal prices, the e-auction premium's decline, and market competition from captive consumers. Challenges concerning production growth and the evacuation of coal from mines continue to loom large, potentially impacting the realization of future profits.
Financial recommendations suggest cautious optimism for investors. While both Nuvama and JP Morgan have revised their target prices upward, they have also advised maintaining oversight over price adjustments and cost pressures moving forward.
Overall, as Coal India traverses through both opportunities and hurdles, the upcoming months will be telling for its stock performance and response to external factors. With an established history and substantial market share, the company's strategic decisions will play a pivotal role as they aim to navigate through current economic conditions.