JPMorgan maintained a 'neutral' rating on Coal India Ltd. after it lowered the target price to Rs 395 from Rs 430. The brokerage citied multiple headwinds to earnings growth. It is still early to bottom fish, it said.
The brokerage mentioned headwinds from softening international thermal coal prices due to oversupply and weak power demand growth in India since August 2024, leading to muted production volume growth. This is also paired with higher-than-average inventory levels. It also spotted a sharp rise in coal dispatch growth year-to-date from captives, leading to a market share loss for Coal India.
With reasons around inventory, demand and downside, this is why investors should steer clear of buying the dip, according to JPMorgan.
No Immediate Catalysts For Price Reversal
JPMorgan does not see any immediate catalysts to trigger a reversal in coal prices.
Risk of slowing import demand from China, paired with growing supply from Indonesia, will weigh on coal prices. This is likely to keep e-auction premium pressured for Coal India in the near-to-medium term, it said.
Coal Inventory In India Above Mean Levels
Coal India has lost market share to captives, according to the brokerage. The company's share in coal dispatches has declined from 78% in financial year 2024 to 75% currently.
Coal dispatches from captives have risen 33% year-on-year. Subs such as SECL and BCCL have shown production de-growth year-on-year and also missed targeted levels of rake movement.
Recent commentary from companies such as HNDL and VEDL suggests a further ramp-up in captive production in the next few years, according to the brokerage.
Volatile Demand
India's power demand growth has a strong correlation with coal volumes, JPMorgan said.
Power demand requirement grew by 2 to 3% year on year in January 2025. The demand has been weak since August 2024, as it has been ranging from -5% to +5%.
The analysis suggests coal production growth moves in tandem with power demand. Thus double-digit power demand growth is key to a volume uptick.
Further Downside Possible
Risk-reward appears balanced at current valuations, according to the brokerage. But further downside is possible.
Coal India's stock price doesn't bottom out sometimes until the dividend yield reaches 11-13%. The brokerage's price cut is driven by the weak pricing and demand outlook for the commodity.
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