Company Overview:

Coal India Limited (CIL) the state-owned coal mining corporate came into being in November 1975. With a modest production of 79 Million Tonnes (MTs) at the year of its inception CIL, today is the single largest coal producer in the world and one of the largest corporate employer with manpower of 239210(as on 1st April, 2023). CIL functions through its subsidiaries in 83 mining areas spread over eight (8) states of India. Coal India Limited has 322 mines (as of 1st April 2023) of which 138 are underground, 171 opencast, and 13 mixed mines and also manages other establishments like workshops, hospitals, and so on. CIL has 21 training Institutes and 76 Vocational Training Centres. Indian Institute of Coal Management (IICM) as a state-of-the-art Management Training ‘Centre of Excellence’ – the largest Corporate Training Institute in India - operates under CIL and conducts multi-disciplinary programmes.

CIL is a Maharatna company - a privileged status conferred by the Government of India to select state-owned enterprises in order to empower them to expand their operations and emerge as global giants. The select club has only ten members out of more than three hundred Central Public Sector Enterprises in the country. CIL has eleven fully owned subsidiary companies viz. Eastern Coalfields Limited (ECL), Bharat Coking Coal Limited (BCCL), Central Coalfields Limited (CCL), Western Coalfields Limited (WCL), South Eastern Coalfields Limited (SECL), Northern Coalfields Limited (NCL), Mahanadi Coalfields Limited (MCL), Central Mine Planning & Design Institute Limited (CMPDIL), CIL Navi Karniya Urja Limited for development of non-conventional/clean & renewable energy and CIL Solar PV Limited for development of solar photovoltaic module. CIL has a foreign subsidiary in Mozambique namely Coal India Africana Limitada (CIAL). Further CIL has five Joint Venture companies- Hindustan Urvarak & Rasayan Limited, Talcher Fertilizers Ltd., CIL NTPC Urja Pvt. Ltd., and Coal Lignite Urja Vikas Private Limited & International Coal Venture Private Limited. The mines in Assam i.e. North Eastern Coalfields (NEC) is managed directly by CIL. Mahanadi Coalfields Limited, a subsidiary of Coal India Ltd is having four (4) Subsidiaries, SECL has two (2) Subsidiaries and CCL has one (1) subsidiary.

CIL Contributes to 85% of total domestic coal production and 75% of total coal based generation. CIL contributes to 55% of total power generation and meets 40 % of the primary commercial energy requirements of the country. Plays a key role in “Make in India” and making India incorporate globally competitive.

TECHNICAL VIEW:

Recent development :

• Coal production in the country has shown a growth of 12.73% compared to the same period during last year. The percentage of production growth of Coal India Ltd (CIL) is 11.80%, 8.45% in SCCL and that of captive & commercial mines is 20.50%. As on 21.10.2023, total coal stock is 71.35 million tonnes (MT) (including coal at mine pithead, transit and thermal power plants) as against total stock of 60.44 MT during the corresponding period of last year, which is 18.05% higher.
• It is to be further noted that during this period, the import of coal was 13.5 MT as against 20.8 MT during corresponding period of last year showing a decrease of 35% in coal for blending purposes.
• Ministry of Coal has planned to ensure 40 million tonnes of closing stock at pithead plants of thermal power and more than 75 million tonnes at mine end as on 31st March, 2024.
• Ministry of Coal is committed to ensure adequate availability of Coal and is in close coordination with Ministry of Railways & Power.

First Mile Connectivity:

Coal India Limited will switch over to mechanized coal transportation through conveyor belts in its large mines by 2023-24 minimizing the existing road transport of coal. Sixty One FMC projects are planned to be operationalized in three phases by 2028-29 increasing the mechanized conveyor system and computerized Rapid Loading capacity of CIL from existing 151MTPA to 914.5 MTPA by FY 28-29. This move promotes environmental safety and prevents possible coal pilferage. It will also lead to mechanized loading of coal which will have benefits like saving in diesel cost, crushing and sizing of coal, quicker and quality computerized pre-weighed coal loading.

Growing Coal Mining Activities in India:

The company could benefit from the growing coal mining activities in India. According to in-house report, coal production in India is estimated to grow at a CAGR of 9% during the forecast period (2022-2025) to reach 1,167.1 Mt by 2025. While thermal coal production is likely to grow at a CAGR of 9% to reach 1,095.9 Mt in 2025, metallurgical coal is estimated to grow at a CAGR of 9% to reach 71.2 Mt in 2025. Growth is likely to be aided by the commencement of new projects and the expansion of existing ones and government initiatives on boosting domestic production to reduce dependency on imports. India's coal consumption is estimated to grow at a CAGR of 2% to reach 1,073.4 Mt by 2025. Thermal coal consumption is estimated to grow at a CAGR of 2% to reach 982.3 Mt, while metallurgical coal estimated to grow by CAGR of 2% to reach 91.1 Mt by 2025.

Increasing Demand for Electricity in India:

The increase in demand for electricity in India could provide ample growth opportunities to the company. According to in-house research, electricity consumption in the country is expected to increase to 2,806.6 terawatt-hour (TWh) by 2030. Improving economy and increasing population are likely to increase the demand for power. In line with the increasing demand, the total installed capacity for power generation in India is expected to grow to 748.6 gigawatts (GW) by 2030. Annual power generation in the country is expected to grow to 3,263.8 TWh by 2030.

Valuation and outlook:

Coal India Ltd (CIL) is a coal producing company in India. Strong cash position, asset base, and operating performance are the company's key strengths, even as debt remains a cause for concern. Increasing demand for electricity in India, new contract wins, and growing coal mining activities in India could provide new growth opportunities for the company. CIL is expected to achieve 742mt volume in FY24. We believe the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term. China has also increased its dependence on thermal power and has commissioned nearly two thermal power plants each week in CY22 and has added more plants in 1HCY23 as well. With 14 countries adding new coal plants in last one year and eight countries announcing new projects, the dependence on coal is therefore likely to increase in the near term. COAL remains our top pick in the mining sector. The stock is trading at an inexpensive valuation. We retain our BUY rating valuing the stock at 5.5x FY25E EV/EBTIDA. We believe dividend yield of 10-11% is sustainable. High profitability will ensure enough cash after capex for higher dividend. We expect DPS of Rs30/20 in each of FY24/FY25; a dividend yield of 8-13%. Our target price is Rs 355.