For Coal India, solar power foray a positive; volumes key to near-term prospects

Coal India Ltd has been in news for diversifying to solar power business having incorporated two wholly-owned subsidiaries – CIL Solar PV Limited for manufacturing of solar value Chain (Ingot-wafer-Cell Module) and CIL Navikarniya Urja Limited for renewable energy.

This foray into solar power and renewables is a positive, given rising concerns about climate change associated with coal usage. There is, however, stiff competition in the renewable energy space, especially solar power. Chinese manufacturers having access to cheap power and abundant water supply are dominating the arena. Larger peers also are benefitting from economies of scale. Hence, Coal India will require to match costs, which would, in turn, require large incentives, say analysts.

The company has seen tepid growth in its volumes over the past few years. Its coal production declined 1% year-on-year during FY21, while sales fell 1.3%. Numbers in March provided some relief, with dispatches up 11.9% – its highest ever for the month. While the growth came on a low base, analysts say there has been some improvement in demand from the power sector.

A sustained rise in volumes holds the key.

Meanwhile, rising covid cases and thus lockdowns across states are set to impact power demand in the near term, feel analysts. Also, Coal India’s inventory has swelled to the highest-ever level of 96 million tonne, as the company did not rein in production, point out analysts. Hence, concerns around production and sales will remain for a while. Not surprisingly, the stock is also down more than 17% since its February highs, despite having reported strong sales in March.

Moving forward, the company plans to achieve 1 billion tonne of coal output by FY23-24. In FY21, output was at 596.2 million tonne, lower than 602.1 million tonne in FY20.

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