Coal India Ltd :Coal India’s Rs 300/Tonne Levy on Northern Coalfields a Positive Surprise, Say Brokerages
Introduction
Coal India Ltd (CIL), the state-owned coal mining giant, is back in the spotlight after announcing a new levy of ₹300 per tonne across all mines of its subsidiary, Northern Coalfields Ltd. (NCL). Effective from May 1, 2025, this move is expected to generate additional revenue of approximately ₹3,877.50 crore in FY25. Brokerages have welcomed this development, highlighting its potential impact on revenue, land acquisition plans, and future price hikes across Coal India’s subsidiaries.
A Big Boost for Revenue and Expansion Plans
NCL, Coal India’s third-largest subsidiary, sold around 138 million tonnes of coal in FY24, contributing 18% of CIL’s total sales volume. Analysts at Nuvama Institutional Equities estimate that if sales volumes remain constant, the levy could generate even higher revenue—approximately ₹4,140 crore per year.
The brokerage firm believes that this additional cash inflow will likely be utilized to fund Coal India’s ongoing land acquisition and rehabilitation program in Singrauli, a key mining area. The move comes at a crucial time as Coal India prepares for the next phase of expansion and infrastructure development in the region.
Potential for Future Price Hikes Across Other Subsidiaries
Brokerages are optimistic that this levy could set a precedent for other subsidiaries of Coal India to introduce similar price hikes. Nuvama pointed out that Coal India has historically raised prices during cost hikes, with the last general price revision under the full Fuel Supply Agreement (FSA) volume taking place in January 2018. In May 2023, the company had also increased prices by around 8% for high-grade coal.
With another wage revision due in June 2026, analysts believe this levy signals Coal India’s ability to implement further price hikes when necessary. This is a positive indicator for future revenue growth, especially given rising operational costs in the mining sector.
Challenges: Sluggish Volume Growth and Market Headwinds
While the levy is a welcome surprise, analysts remain cautious about Coal India’s overall earnings growth due to stagnant sales volumes. As of YTD FY25, the company’s total volume has only grown by 1.8% year-on-year to 630 million tonnes. This slow growth could act as a constraint on earnings despite the added revenue from the levy.
JP Morgan, which recently increased its target price on Coal India from ₹395 to ₹420, acknowledged that the FSA price hike is a step in the right direction. However, it also pointed out key challenges such as:
- Declining international thermal coal prices
- A fall in e-auction premiums
- Market share loss to captive players
- Weak production growth
- Evacuation-related challenges
Despite these hurdles, brokerages believe that Coal India’s strong dividend yield of approximately 7% (₹25 per share) provides downside protection for investors, making the stock an attractive hold.
Financial Overview and Key Ratios
Here’s a look at Coal India’s key financial metrics:
| Metric | Value |
|---|---|
| Market Cap | ₹2,24,231 Cr. |
| Current Price | ₹364 |
| 52-Week High/Low | ₹545 / ₹349 |
| Stock P/E | 6.53 |
| Book Value | ₹156 |
| Dividend Yield | 7.01% |
| ROCE | 63.6% |
| ROE | 52.0% |
| Face Value | ₹10.0 |
| Promoter Holding | 63.1% |
| Debt to Equity | 0.08 |
| Price to Earnings | 6.53 |
| Pledged Percentage | 0.00% |
| QoQ Profits | 35.3% |
| Qtr Profit Var | -17.2% |
| Industry P/E | 15.5 |
| Graham Number | ₹443 |
| Intrinsic Value | ₹738 |
| RSI | 44.3 |
| EPS | ₹55.9 |
| No. of Eq. Shares | 616 |
| PEG Ratio | 0.40 |
| DMA 200 | ₹418 |
| Free Cash Flow (3Yrs) | ₹50,987 Cr. |
| Free Cash Flow | ₹1,353 Cr. |
| Debt | ₹7,816 Cr. |
Conclusion: A Positive Step for Coal India, but Challenges Remain
Coal India’s decision to impose a ₹300/tonne levy on NCL is a strategic move that could pave the way for similar actions across its other subsidiaries. The additional revenue will aid in land acquisition and operational expansion, strengthening the company’s financial position.
However, volume stagnation and external market factors remain concerns. While the levy will boost near-term earnings, sustained long-term growth will depend on how effectively Coal India addresses production bottlenecks, market competition, and cost pressures.
For investors, Coal India’s strong dividend yield and reasonable valuation provide some downside protection, making it an interesting stock to watch in the coming quarters.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.