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The Indian stock market experienced volatility on Wednesday, with shares of Coal India Limited (CIL) plummeting by 4% following the company's report of a significant decline in sales volume during August 2024. This drop, which saw CIL's share price hit a low of ₹500.70 on the Bombay Stock Exchange (BSE), reflects the impact of reduced power demand attributed to heavy rainfall across India, a crucial factor influencing the company's performance.
Despite this dip, leading domestic brokerages, including Nuvama and JM Financial, remain confident about the long-term growth potential of Coal India. These firms highlight the company's significant role in the Indian energy sector and its ability to capitalize on a sustained surge in power demand. The optimistic outlook stems from the continued focus on thermal power capacity additions across the country, driven by the government's initiatives to enhance energy infrastructure.
The report revealed that CIL's August 2024 sales volume reached 52.1 million tons, representing a 12% year-over-year decline. While the heavy monsoon is a primary contributor to this drop, the overall sales volume for the period between July and August 2024 reflects a more persistent downward trend, falling 5.7% compared to the same period in the previous year. This decline can be attributed to a combination of factors, including ongoing weakness in power demand, increased coal production from captive mines, and sustained high levels of coal imports.
Despite the recent dip, Coal India's total sales volume from April to August 2024 has recorded a slight year-over-year increase of 1%, reaching 308 million tons. This suggests that while the company is facing challenges due to the monsoon and cyclical demand fluctuations, it maintains a positive trajectory in the long run. The company's ability to maintain a stable sales performance amidst such external factors demonstrates its resilience and capacity to weather short-term fluctuations.
While JM Financial reiterates its buy rating on Coal India and sets a target price of ₹601, Nuvama has adopted a more cautious approach, issuing a hold rating and reducing its target price to ₹542 from ₹567. This shift in outlook reflects the brokerage firm's concerns regarding the sustained weakness in sales volume, particularly given the recent trends. Nuvama's analysis incorporates a 1% year-over-year decline in CIL's sales volume for both FY25 and FY26, citing the impact of weak demand and its effect on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The current situation presents a mixed outlook for Coal India. While the stock has experienced a dip due to lower sales volumes, driven primarily by monsoon-induced reduced power demand, prominent brokerages maintain their long-term optimism. The company's position as a dominant player in the Indian energy sector, its strong production targets, and the government's focus on thermal power capacity additions provide a solid foundation for growth. Nevertheless, challenges related to demand fluctuations and external factors like monsoon impacts will continue to influence the company's performance in the near future.
Source: Coal India stock plunges 4% after company reports dip in August sales volume; Should you buy?