Moneycontrol Pro Panorama | Making hay while the sun shines

Given the short-term focus of the stock market, shareholder returns will be linked to revival of production and earnings.

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In business, companies take both long-term and short-term decisions. Capital expenditure decisions are based on long-term demand expectations. Production, supplies and prices are tuned to market conditions. Coal India’s decision to reopen defunct mines should be seen in this perspective.

Talking to the Financial Times, Coal India’s Chairman and Managing Director PM Prasad said the company has initiated steps to reopen 32 mines. The company is aiming to resume production in some of these mines in the current fiscal year itself.

The decision runs against the current market situation where a mild summer is crimping demand for coal. Offtake declined at Coal India in April-May this year. Fuel inventories at thermal power plants are at comfortable levels and green power generation capacities are rising at a healthy pace.

Yet, short-term market trends cannot dictate long-term decisions. Coal India sees the need for fresh coal in the coming years. The optimism emanates from three fronts. First, India continues to add new thermal power generation capacities—an estimated 40 gigawatt of thermal power projects are under construction.

Second, there is an opportunity for import substitution. In 11 months to February 2025, India imported 220.3 million tonnes of coal. Imports constituted around 6.9 percent of coal consumed by thermal power utilities in FY26. Even though imports have moderated in FY25, the opportunity to replace it with domestic supplies is a substantial one.

Third, there is a problem of intermittent nature of renewable power. India is seeing abundant electricity supplies during the daytime. But when the sun sets and solar power generation comes to a halt, the responsibility to maintain supply falls on coal plants to meet peak electricity demand. The scenario is best illustrated in the spot electricity markets where prices are shooting up after 7 pm.

These three factors are driving new investments by Coal India. In fact, much of the global investments in coal supplies are driven by India and China in 2024 to meet domestic demand, points out International Energy Agency.

Analysts expect the long-term coal demand to mimic the Indian economy's growth trajectory, which is estimated to grow by more than 5 percent per annum. “Notwithstanding the short-term weather patterns and the base effect, we highlight that the power demand in India is closely linked to the GDP growth,” analysts at Kotak Institutional Equities said in a note.

The data and market analysis should reassure long-term investors of Coal India. However, given the short-term focus of the stock market, shareholder returns will be linked to revival of production, offtake and earnings at Coal India.

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