Shares of Coal India (CIL) surged over 6 per cent on Wednesday after the Coal Ministry removed the cap on e-auction volumes. The coal sold through e-auctions is usually of a high grade and fetches CIL more money, said analysts.

The stock was the biggest gainer on the Sensex and the Nifty. It climbed 5.73 per cent to ₹380 on the BSE. On the NSE, CIL rallied 6.23 per cent to ₹382. The government wrote to Coal India stating that the modalities of e-auction of coal beyond March 31, were considered by the Ministry. “With the approval of the competent authority, it has been decided to revert to the old system (on e-auction)...,” the letter said.

Natural beneficiary According to analysts, CIL is likely to be a natural beneficiary of the prevailing demand-supply gap.

The lifting of the cap will enable CIL to increase its e-auction volume to about 10 per cent of total sales, which was the general standard practice earlier, said ICICI Securities. “Going forward, we have assumed e-auction volumes at 10 per cent of offtake for both FY16 and FY17,” it added. One of the key reasons cited for the Ministry’s move to remove the cap was the rising pit-head stock of CIL.

The company’s offtake for FY15 at 489.3 million tonnes (mt) was lower than its output of 494.2 mt, resulting in the pit-head stock increasing to 53 mt at the end of FY15, from 47 mt at the end of FY14, owing to evacuation issues. Global financial major Nomura said while a bottom-up blueprint clearly spelling out external prerequisites to double CIL’s production by FY20 was a much needed ‘first step’, a roadmap by the Centre for build-out of rail links (evacuation infrastructure) is the need of the hour.

Greater engagement “Nevertheless, persisting impetus for greater engagement between Central/ State/ local authorities to address factors constraining CIL’s output bodes well, in our view,” said Nomura, which retained its buy rating with a price target of ₹417 but reduced it from the earlier target of ₹443.

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