Should Coal India’s investors worry, after a 65% rally?

livemint.com:

Coal India Ltd (CIL) has kicked off 2024 with a bang. Shares of the mining major hit a new 52-week high for the second consecutive day on Tuesday.Fuelling the optimismis thecompany’s coal production and offtake numbers for April-Decemberreleased late Monday. Production rose 11% year-on-year to 531.9milliontonnes(mt)during theperiod, while offtakewas up 9% at 552mt.This drove CIL’s stock to a fresh 52-week highof ₹394.65apiece.

Somebelievethe rally in power stockstoo may have aided sentiments for CIL. “From a valuation standpoint, all power stocks are trading at a premium to CIL, which could bearguably seenas a proxy for power," said Rohit Natarajan, an analyst at Antique Stock Broking.This is the primary driver behind the rally in CIL shares, he added. But after the steep rally of 65% in the past six months, should CIL’s investors worry now? There are some comforting factors such as the thrust on thermal power generation, volume growth, and higher e-auction premiums.Plus, CIL’s dividend yield has been attractive.

For FY24 and FY25, CIL has a coal production target of 780 mtand850 mt, respectively, indicating its confidence on demand prospects. With more reliance on thermal power plants,thedemandfor coal (used as a fuel in generating thermal power)isseen rising.Thus, volume growth can be expected to be strong. It also helps that e-auction premiums have been robust, which would aid the blended price realizations and margin.

Typically,coal sold through the e-auction route fetches higher prices. The price drawn above notified prices is e-auction premium. E-auction premium had softened in July to 58%, in line with the fall in international coal prices.