Coal India output growth slips in February

MUMBAI: Investors gave a thumbs down to Coal India Ltd's (CIL's) latest production and sales (by volume) numbers. Production increased 6.3% year-on-year for February while sales grew at an even slower pace of 5.5%. See the chart alongside. Weak power sector demand continues to haunt sales growth and last month seems to be no exception. All India coal stock at power plants as per Central Electricity Authority's February report is 24 days versu s a normative requirement of 21 days, pointed out a report by JM Financial Institutional Securities Ltd. In comparison, coal stocks at power plants were 9-10 days last year.

February numbers were announced on Tuesday after market hours. On Wednesday, the CIL stock declined about 2%, on a day when the benchmark Sensex increased 2%.

Nevertheless, performance for the year so far is nothing to complain about. Production and offtake growth between AprilFebruary was 9.2% and 9.3%, respectively, representing 97% of the targeted level for each. Achieving the full-year target looks difficult. The implied production/offtake year-on-year growth in March is 27%/41%, for the company to achieve its fiscal year 2016 targets. That's a tall order.

CIL shares showed a modest gain after it announced betterthan-expected December quarter results. Demand concerns and muted outlook on realizations continue to weigh on the stock. There is hope that power sector demand could improve during the summer season and thus lead to better offtake in the near future. That remains to be seen. Demand from non-power sector (especially the cement industry) though, isn't particularly bright and the situation may persist for some time.