The surging demand for coal in India is propelling the shares of state-run entities Coal India and NTPC Ltd, once considered sluggish giants by investors. Despite being dismissed in the past, these companies are outperforming the broader market and global peers amid the booming demand for Indian coal.
NTPC, a major coal-fired power producer, has seen a remarkable 78% surge, surpassing the broader Nifty Index’s gain of 17%. Similarly, Coal India’s shares have risen by 55%, marking its best performance in 2023.
As India remains the most coal-dependent major economy, the country’s reliance on coal for power generation is expected to increase for the third consecutive year, providing a significant boost to these two state-run giants.
Analysts predict that the ongoing efforts to enhance efficiency and secure access to affordable capital will further extend the upward trajectory of both companies’ shares. According to LSEG data, most analysts recommend buying or retaining holdings in these two stocks.
In contrast, shares of coal miners in other countries, such as Indonesia’s Adaro Energy, Australia’s Whitehaven Coal, and U.S.-based Peabody, have experienced declines this year. Although shares of China Shenhua and China Coal Energy rose, the increase was less substantial compared to their Indian counterparts.
Despite the challenging global environmental, social, and governance (ESG) norms for institutional investors, foreign funds are increasing their stakes in these companies. Notable investors include the asset management units of Goldman Sachs, Nippon Life, Vanguard, Blackrock, Fidelity, Mellon Investments, and Charles Schwab.
With a price-to-earnings ratio of 7.63, Coal India is deemed cheaper than major Chinese peers, and NTPC is considered undervalued compared to many Chinese and American counterparts.
Both companies, traditionally seen as dividend stocks, have undergone a remarkable transformation. In the last decade, they outperformed the Nifty only once each. However, since 2021, NTPC’s value has tripled to $34 billion, while Coal India has grown 2.5 times to $26 billion.
NTPC’s lower cost of debt and its focus on thermal additions, considered key to stability, have contributed to its success. While NTPC continues to add coal-fired capacity and increase coal output from its mines, Coal India is optimizing operations by outsourcing some activities and cutting jobs to boost margins. Despite most of Coal India’s sales being on low-margin, long-term contracts, surplus output has allowed for more significant spot sales in the lucrative auction market, distinguishing it from global counterparts facing funding challenges.
