Coal India margins face cost pressure as power demand and dividends support outlook

Investment View and Outlook

PL Research retained its ACCUMULATE rating on Coal India in its July 28, 2026 result update. The recommendation follows a Q1FY27 EBITDA miss caused by elevated fuel, material and contractual costs. The broker believes operating costs are near their peak and expects Coal India to remain a beneficiary of sustained power demand, with approximately 80 per cent of volumes linked to coal-based power generation.

PL Research models modest offtake growth of 2 per cent in FY27E and 3 per cent in FY28E. EBITDA excluding overburden removal is expected to grow by 11 per cent in FY27E and 5 per cent in FY28E.

Q1FY27 Operating and Financial Performance

Coal India reported consolidated revenue of Rs46,254.8 crore in Q1FY27, up 8 per cent year on year and 22.2 per cent above PL Research’s estimate. Offtake increased 4 per cent year on year to 198.2 million tonnes. Blended average selling price rose to Rs2,338 per tonne from Rs2,248 per tonne in Q1FY26.

E-auction dispatch accounted for 13 per cent of offtake, compared with 11 per cent a year earlier. E-auction realisation improved to Rs3,085 per tonne from Rs2,917 per tonne. Despite the stronger realisations, EBITDA excluding overburden removal declined 9 per cent year on year to Rs10,238.2 crore, 17.1 per cent below PL Research’s estimate, mainly because of higher diesel and fuel-related material costs and contractual expenses.

Reported Q1FY27 EBITDA declined 4.1 per cent year on year to Rs12,068.5 crore and was 10.9 per cent below the broker’s estimate. EBITDA margin fell to 26.1 per cent from 29.3 per cent in Q1FY26. Adjusted PAT was broadly flat year on year at Rs8,849.8 crore, 6.1 per cent below PL Research’s estimate. Growth in other income of 26 per cent year on year and a lower effective tax rate partly offset the weaker operating performance.

Dividend Capacity and Financial Forecasts

Coal India declared its first interim dividend of Rs5.5 per share for Q1FY27, representing a 38 per cent quarterly payout. PL Research notes that cash reserves of more than Rs52,000 crore, equivalent to approximately 18 per cent of market capitalisation, support the company’s dividend capacity. The broker estimates FY27E dividend per share at around Rs28, implying an approximately 7 per cent dividend yield.

Valuation and Target Price

Following the cost-led Q1FY27 miss, PL Research reduced its FY27E and FY28E EBITDA estimates by 4.2 per cent and 5.1 per cent, respectively. EPS estimates were reduced by 4.3 per cent for FY27E and 5.2 per cent for FY28E.

The target price was revised to Rs472 from Rs515. The valuation is based on 5.25 times FY28E EV/EBITDA, using FY28E EBITDA of Rs47,797.6 crore. The valuation also reflects net cash, based on projected cash of Rs59,695.7 crore versus debt of Rs19,851.5 crore.

Non-Coal Diversification Progress

Coal India made progress on non-coal diversification during Q1FY27. The CIL-BHEL joint venture laid the foundation stone for a commercial coal-gasification project involving approximately Rs25,000 crore of investment and annual ammonium-nitrate capacity of 6.6 lakh tonnes.

In renewable energy, Coal India commissioned 200 MW of the 300 MW Khavda solar project and received a commissioning certificate for the 100 MW Bhadramali solar plant. The Bhadramali project generated its first energy-sales revenue of Rs5.7 crore during the quarter.

BCCL commissioned a 2.0 million tonnes per annum Bhojudih washery, taking total coal-washing capacity to 17.35 million tonnes per annum. Production also commenced at the ASGKCC mine under the revenue-sharing MDO model.

Key Pressure Points

• Higher fuel, material and contractual costs reduced profitability despite revenue growth and stronger realisations.
• Q1FY27 EBITDA excluding overburden removal and reported EBITDA both missed PL Research’s estimates.
• The outlook includes only modest offtake growth of 2 per cent in FY27E and 3 per cent in FY28E.