Citi has a ‘Neutral’ rating on the stock with a price target of ₹430 per share. The brokerage said that Coal India has chosen to absorb higher costs arising from the West Asia crisis.
The cost of explosives used for blasting has risen 26% in the past month, while industrial diesel prices have surged 54% over the same period.
Explosives and diesel together account for about 8% of the company’s total costs, and the recent spike could lead to an overall cost increase of around 3%, Citi said.
The brokerage also said that some subsidiaries have reduced reserve prices for e-auction coal while increasing volumes.
While e-auction prices are expected to trend higher in line with global coal prices, the lower reserve price and higher supply could widen the discount to import parity beyond the five-quarter average of 30%.
JPMorgan also maintains a ‘Neutral’ rating on Coal India, with a price target of ₹403. The stock had declined 4% on Friday, underperforming the Nifty’s 1% gain, after the company announced it would absorb raw material cost pressures and cut e-auction reserve prices.
JPMorgan estimates that the rise in explosives and diesel prices could impact EBITDA by 7-8% annually, translating to an additional cost burden of around ₹3,000 crore. This could lower the stock’s fair value by 4.5-5.5%, all else being equal.
The brokerage added that while global thermal coal prices are rising, the benefit may not fully accrue to Coal India due to its pricing stance.
Coal India, in its own disclosure, said explosives prices have surged 44% to ₹72,750 per metric tonne, while industrial diesel prices have jumped 54% to ₹142 per litre. Despite these pressures, the company has opted not to fully pass on the increased costs to customers.
Shares of Coal India were last trading 0.07% lower at ₹433.80. The stock has gained over 8% so far this year.
