Why JP Morgan Says Not to Buy Coal India Now

JPMorgan has cut Coal India’s target price from ₹430 to ₹395, citing several challenges. The brokerage maintains a ‘neutral’ rating on the stock. Here are the five reasons for their cautious stance:

1. Weak Power Demand: Since August 2024, India’s power demand growth has been weak, affecting Coal India’s production volume growth.
2. Oversupply of Coal: International thermal coal prices have softened due to oversupply, putting pressure on Coal India’s margins.
3. High Inventory Levels: Coal India has higher-than-average inventory levels, which further dampens its revenue prospects.
4. Increased Competition: The rise in coal dispatch growth from captive players has reduced Coal India’s market share.
5. Muted Earnings Growth: These factors combined have led to muted earnings growth, making it too early for investors to bottom-fish.

Despite achieving production targets, Coal India faces near-term headwinds. The company’s Q3 net profit fell 17% year-on-year to ₹8,506 crore. The stock has dropped 18.67% in the past year. Investors are advised to remain cautious and consider these challenges before making any investment decisions.