Coal India: Why JP Morgan cut target price in this PSU stock?

JPMorgan has revised its outlook on Coal India, cutting the stock’s target price to ₹395 from ₹430, citing multiple challenges in the coal industry. The revised price target suggests an 8% upside from current levels. Despite this, the brokerage has maintained a ‘Neutral’ rating, indicating a cautious stance on the stock’s near-term prospects.

The key concerns highlighted by JPMorgan include weak power demand growth, oversupply-driven lower coal prices, and rising competition from captive players. The brokerage noted that these factors have significantly impacted Coal India’s earnings visibility, making it too early for investors to take a bottom-fishing approach.

Weak International Coal Prices Impact Margins

One of the primary reasons for JPMorgan’s downgrade is the softening of international thermal coal prices, which has put pressure on Coal India’s profit margins. The global coal market is currently witnessing an oversupply situation, leading to lower price realizations for coal exporters. As a result, Coal India’s earnings outlook remains weak, with limited upside potential in the near term.

Additionally, domestic power demand has remained subdued since August 2024. This has led to muted production volume growth for Coal India and higher-than-average inventory levels, further dampening the company’s revenue prospects.

Rising Competition from Captive Players Erodes Market Share

Another major concern flagged by JPMorgan is the increasing competition from captive coal producers. The brokerage noted that coal dispatches from captive players have witnessed a sharp year-to-date (YTD) growth, reducing Coal India’s market share.

The company has traditionally held a dominant position in India’s coal supply chain, but with more private sector players ramping up production, Coal India is facing pricing pressure and volume declines. This competitive landscape is expected to persist in the coming quarters, limiting the stock’s upside potential.

Coal India’s Production Guidance on Track

Despite these challenges, Coal India remains on track to meet its FY25 production target of 838 million tonnes (MT). With just two months remaining in the financial year, the company has already achieved about three-quarters of its target. However, JPMorgan believes that subdued domestic demand and oversupply issues will continue to weigh on Coal India’s performance.

When Can JPMorgan Turn Bullish?

JPMorgan has identified two key conditions that could prompt an upgrade in its view on Coal India. First, if the stock falls below ₹340 per share, which represents an additional 6 percent downside from current levels, it could offer an attractive entry point for investors. Second, if India’s power demand growth improves significantly in the coming months, it could help Coal India regain lost market share and improve earnings visibility.

Coal India Q3FY25 Results

Coal India’s December quarter results reflected the ongoing pressures in the coal market. The state-run miner reported a 17 percent year-on-year (YoY) decline in its consolidated net profit, which fell to ₹8,506 crore from ₹10,253 crore in the same period last year.

Revenue from operations also declined, coming in at ₹35,780 crore, down 1 percent from ₹36,154 crore in Q3FY24. However, on a sequential basis, the company reported a 35 percent increase in profit from ₹6,289 crore in Q2FY25, while revenue grew 17 percent from ₹30,672 crore in the previous quarter.

Coal India Share Price Performance

Coal India ended 1 percent lower in the previous session February 25, 2025 at ₹361.25 on BSE. Markets are closed today for trading on account of Maha Shivratri.

Currently, the stock is around 34 percent away from its peak of ₹544.70, hit in August 2024, meanwhile, it has up just a little over 3 percent from its 52-week low of ₹349.20, recorded earlier this month, February 17.

The PSU stock has lost over 18 percent in the last 1 year. Moreover, in February so far, it shed around 9 percent after a 3 percent gain in January. Before this, the stock was in the red for 4 straight months between September-December 2024, down 27 percent in that time.

While the stock remains a key player in India’s energy sector, the near-term outlook remains uncertain amid global and domestic challenges.

In summary, JPMorgan’s downward revision of Coal India’s target price to ₹395 underscores the ongoing challenges in the coal industry. With weak power demand, lower coal prices, and rising competition from captive players, the stock is facing near-term headwinds. While Coal India’s production remains on track, earnings pressure and limited pricing power continue to weigh on investor sentiment.

The brokerage has indicated that a further correction in share price or a strong recovery in power demand could turn its stance more positive. However, for now, it remains cautious on the stock, advising investors to wait for better clarity before taking a bullish position.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.