2 April 2020
Update | Sector: Utilities
TP: INR202 (+45%)
Dispatches decline even as production ramps up
Foresee near-term headwinds as power demand plummets
Dispatches decline ~10% YoY in Mar’20, ~4% YoY in FY20
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
859.1 / 11.4
271 / 119
Coal India’s (COAL) dispatches declined 10.3% YoY to 53.5mt in Mar’20 due to a
sharp fall in demand from the power sector. On the other hand, production
was up 6.5% YoY at 84.4mt led by growth in its key subs (SECL: +22%;
For FY20, the company’s dispatches were down 4% YoY at 582mt, while
production declined ~1% YoY to 602mt.
India’s nation-wide lockdown comes at a time when (a) power demand has
largely remained muted (11MFY20: +1.5% YoY) and (b) production at COAL’s
mines has been ramped up following a heavy monsoon season. Accordingly,
inventories at both coal mines and power plants have risen (refer to Exhibits
1/2) – a general trend at the onset of summer, but higher than usual.
On the other hand, with Industrial and Commercial consumers accounting for
nearly ~50% of India’s power demand, generation has been severely dented
over the past one week. A look into March 22
data (Exhibit 3) indicates
demand declined ~21% v/s daily three-year averages (2017–19).
In contrast, for
the first 21 days in March, demand was up 2.5%.
In fact, following the country-
wide lockdown (March 25
), the decline stands steeper at ~25%.
Furthermore, given the must-run status for renewables in the country, the
brunt of the demand decline is being borne by coal-based plants. Generation
from coal-based plants fell ~40% YoY over March 25
On account of such a sharp demand drop and higher coal inventories at power
plants, we build in lower dispatches for COAL in FY21 (-5.5% YoY v/s earlier:
+6.5% YoY) (Exhibit 5). While we also anticipate a decline in coal imports
(especially from the non-power sector), a subsequent fall in global coal prices
may pose a risk and eventually impact COAL’s e-auction realizations. We build
in e-auction realizations of INR2,000/t for FY21 (FY20E: INR 2,200/ FY19:
A large proportion of COAL’s cost is fixed, with employee cost accounting for
~50% of expenses. Moreover, we expect the company to focus on OBR-
removal activities (if lower demand persists) and continue to utilize contractual
employees. Thus, with lower dispatches, negative operating leverage is likely to
Working capital could also be stretched with elevated receivables as cash
issues due to lower demand materialize within the power value chain.
Furthermore, we do not expect production to fully mirror the nosedive in
demand in the near term. As a result, inventories could pile up in the interim.
Lower power demand to impact dispatches amid inventory buildup
2020E 2021E 2022E
Shareholding pattern (%)
Dec-19 Sep-19 Dec-18
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Foresee near-term headwinds as negative operating leverage may kick in
– Research analyst
(Aniket.Mittal@motilaloswal.com); +91 227198 5585
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.