India's coal output to further decline in June followed by fall of 4.7% in Apr-May: Nuvama

The report highlighted that India's major coal producer, Coal India Ltd (CIL), has started FY26 on a weak note with sales volumes falling about 4.7 per cent year-on-year during the April-May 2025 period.

It said "Volume growth missing; long-term volume growth too at risk COAL started FY26 on a soft note with sales volume down approx. 4.7 per cent YoY during Apr-May '25. We reckon a volume decline even in Jun-25".

Data from the Ministry of Coal shows that overall power demand during April-May 2025 fell 1.6 per cent YoY, impacting coal demand across many regions.

In addition to this, rising volumes from captive and commercial coal mines have further dented Coal India's market share.

During April-May 2025, coal volume from captive and other producers rose 14.5 per cent YoY to nearly 35 million tonnes (mt), capturing 20 per cent of the overall demand, up from 17.5 per cent in the same period last year.

Over the course of FY25, captive and other mines consumed 197 mt of coal, registering a strong 31 per cent YoY increase.

The report highlighted that the peak rated capacity of captive mines allotted or auctioned so far stands at 575 mtpa, raising long-term volume growth concerns for Coal India.

As a result, the report has revised down its sales volume estimates for Coal India by 2 per cent for both FY26E and FY27E, to 770 mt and 793 mt, respectively. This translates to just a 2 per cent volume CAGR over FY25-27E.

In terms of production capacity, Coal India is also facing challenges due to high inventory levels. At the end of May 2025, the company held a coal stock of around 112 mt, significantly higher than the 82 mt inventory at the end of May 2024.

The average inventory from FY20 to FY25 was 83 mt. Such high stock levels are expected to limit any major production increase.

On the cost front, Coal India is likely to see a rise in its cost of production (CoP) due to multiple factors. The stripping ratio, a key cost driver, is expected to rise to 2.67x in FY26 from 2.58x in FY25. This would push up production costs as there is no corresponding volume growth to provide operating leverage.

Additionally, FY27 could see another spike in costs due to higher employee expenses stemming from the next wage revision for non-executive staff scheduled for June 2026.

The report projects Coal India's total cost of production to increase at a compound annual growth rate (CAGR) of 4 per cent over FY25-27E, reaching Rs 1,422 per tonne by FY27.