Big Downgrade for Coal India: 3 Critical Concerns That Forced Nuvama to Slash Target
What Happened
Brokerage firm Nuvama Institutional Equities has sharply reduced its target price for Coal India, bringing it down from ₹405 to ₹367—a cut of approximately 9%. In addition to the target revision, the firm has downgraded the stock from a “Hold” or “Accumulate” rating to Reduce, citing three key concerns affecting the company’s outlook.
1. Sluggish Volume Growth
Coal India’s sales volumes have shown signs of weakening. For the period April–May FY26, sales volumes declined by 4.7% year-on-year. This downward trend is expected to continue into June. Nuvama forecasts a 2% annual decline in volume for FY26 and FY27. Lower volumes directly impact revenue growth and reduce operating leverage, thereby limiting profitability.
2. Rising Production Costs
Coal India is facing increasing production costs, driven by:
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Higher stripping ratios: The company’s average stripping ratio is rising from 2.31x (FY20–25) to a projected 2.67x, meaning more overburden has to be removed for every tonne of coal mined.
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Inventory accumulation: Growing inventory levels are restricting volume growth.
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Expected wage hikes: Scheduled for June 2026, these will significantly increase employee costs.
These cost pressures collectively reduce the company’s profit margins and financial flexibility.
3. Decline in E-Auction Prices
Global thermal coal prices have dropped to approximately US$115 per tonne, significantly lower than peak levels observed in recent years. This global trend is mirrored domestically, with Coal India’s e-auction prices declining. If the company increases e-auction volumes to offset volume stagnation, it may trigger further price declines, further impacting revenue.
Implications for Investors
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Target price vs. current value: The new target of ₹367 suggests an additional downside of around 8% from current trading levels.
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Investment outlook: Nuvama has issued a Reduce recommendation, advising investors to consider exiting positions on any upward movement in the stock price.
Watchlist Factor: Bharat Coking Coal IPO
Investor attention is also focused on the upcoming IPO of Bharat Coking Coal Ltd, a key subsidiary of Coal India. While the listing date is yet to be confirmed, the IPO could influence market sentiment around Coal India in the near term.
Summary Table
| Concern | Details |
|---|---|
| Volume Decline | 4.7% YoY drop in April–May, 2% projected lower annual volume |
| Rising Costs | Higher stripping ratio, inventory buildup, upcoming wage revisions |
| Weak Auction Prices | Global and domestic price drop affecting revenue |
Nuvama’s downgrade reflects mounting concerns over Coal India’s growth prospects, operational cost burden, and falling market prices for coal. Unless there is a reversal in demand trends, cost optimization, or price stability, the company is likely to face continued pressure on its margins and valuation.