Coal India's Slipping Market Share, Pricing Pressures Explain JPMorgan's 'Neutral' Stance

JPMorgan has maintained a 'neutral' rating on Coal India Ltd., as the brokerage does not see the underlying fundamentals improving.

Despite the recent underperformance of the stock, JPMorgan anticipates the state-owned miner's monthly volumes to see growth starting August, driven by a favourable base effect, with expectations of a 7.5% year-on-year growth.

The price target is set at Rs 415 and volumes are expected to grow by about 4% in financial year 2026.

Coal India's volume dispatch for July and August is expected to show a positive turnaround. Last year, the company's July sales were flat year-on-year, and August showed a 13% year-on-year decline. This weakness was attributed to weakening power demand trends by the brokerage.

However, stable inventory at thermal power plants and a steady rise in volumes from mines indicate a positive shift.

The stock may see a brief rally in the near term as monthly volume data shows growth, according to the brokerage. However, despite the stock's recent underperformance—with losses of 21% over the past year—the it warns that any rallies are likely to be short-lived given the weak underlying fundamentals.

Coal India's market share in the domestic market has also slipped to 75% year-to-date, down from 83% in financial year 2021.

JPMorgan forecasts 5% sales volume growth for the remainder of financial year 2026, and expects softening of full-year sales volume growth.

India's power consumption declined 1.5% year-on-year in June, following the 4.4% decline year-on-year in May. Coal inventory at thermal power plants currently stands at 20 days. The long cycle mean is 13 days, and coal stock had dipped to about seven days two years back during post-monsoon. According to the brokerage, this indicates that while current inventory levels are comfortable, sustained high demand could quickly change the scenario.

Lower international thermal coal prices are likely to weigh on Coal India's e-auction premium, according to the brokerage. The Ministry of Coal's report suggests that the e-auction premium has declined to 2-3% at the end of financial year 2025 and JPMorgan forecasts up to 45% premium for the first quarter of financial year 2026. Despite a notable increase in coal imports, domestic coal stocks remain elevated.

Further, India's renewables have grown by 23% and this shift toward renewables could pose a long-term challenge for coal demand. JPMorgan does not expect Coal India to sustain double-digit volume growth going forward.