Share price of Coal India (CIL) bucked its recent downtrend and went up by 1.5 per cent on Thursday, thanks to some bright spots in its June quarter results, announced on Wednesday.

Revenues increased 6.6 per cent to Rs 19, 518 crore compared to the same period a year ago. Operating profits increased 2.7 per cent to Rs 4,386 crore, owing to a 38 per cent jump in contractual expenses. Net profit fell 6.7 per cent, dragged by lower other income.

But CIL put up a good show on the production front. CIL’s output for the June quarter increased 12 per cent to 121 million tonnes (MT), which was a key positive, considering that the company's production growth was just about 5 per cent in the same period last year.

Production growth may improve further with its planned expansions. The company plans to invest Rs 762 crore – about 12 per cent of its total capital expenditure – to increase underground mining. The expansion in Mozambique, Africa, as part of the joint venture ICVL, has also started production.

Output from the mine is around 5.3 mt per year and is expected to ramp up to 13 mt in five years. Locally, CIL’s expansion plans were stuck with 187 forest clearances and 23 environment clearances pending; the company has received 41 environmental and forest clearances in the last eight months, a positive development.

Also, issues with transporting coal may ease with plans for the expedited construction of three railway links in five years to add 200 MT capacity. One of the lines - Jharsuguda-Barpali railway link project in Odisha - is planned to be completed by 2017. In April 2015, a new joint venture - between the Ministry of Railways, Ministry of Coal and Government of Odisha - was planned to transport 200-300 MT of coal by rail. Also, 60 railway projects have been identified to increase evacuation the capacity by 100-120 MT.

While these bode well for future production and off-take, falling coal prices is a cause for concern. Globally prices are hurtling; in the past year, prices of thermal coal have dropped from $60 a tonne to $43 currently. But CIL has not revised its prices accordingly. As a result, certain high-calorie coal from CIL is costlier than imported coal. The company may have to revise prices downwards, which is likely to hurt the revenue and profit.

Also, falling prices would impact profits from the e-auction segment – which accounts for around 10 per cent of volume, but 35 per cent of operating profits. The amount of coal e-auctioned was capped in September 2014 but was relaxed in April 2015. In the June quarter, e-auction volumes were similar to that seen during the same period last year at 16.8 mt. But the average realisation dipped to Rs 2,148 per tonne compared with Rs 2,246 last year. Fall in e-auction volumes and prices due to cheaper imported coal would hurt CIL's prospects.

The stock also faces pressure due to the proposed stake sale.

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