Coal India Share Price Forecast After Privatisation in Coal Mining Sector

Coal India limited will soon lose its monopoly over the business as private players are ready to enter the market.  Private companies will soon be able to mine and sell coal to the required industry. The objective of the move is to lower the price and imports with introduction of new and advanced technology by the private sector. Let’s try to analyse the impact of this decision on Coal India share price.

Government has allowed private companies to bid for coal mines. The company which submit highest bid will win the auction for commercial production.

Private sector is entering the market with the expectation to boost investments in the country and increase the supply with moderate prices. Private players are expected to use technology intensive practices while Coal India use labor intensive technique which ultimately leads to higher production cost.

Why Privatization was required?

Coal sector was nationalized in year 1973. Now, it passed nearly 44 years after nationalization and still struggling to meet the coal demand. If we talk about the April-December coal production of CIL, it has produced 385.6 million tonnes against the target of 406.6 million tonnes. The full fiscal year target of production is at 600 million tones.

Full year production level of fiscal year 2016-2017 was 554 million tones. It is envisaged that 1 billion tones of production will be achieved by the end of year 2022, which looks quit imaginary with this level of production.

Coal India Share Price Future: Buy, hold or sell?

After announcement by the government to allow private players to mine and sell coal for commercial use, stock lost nearly 2% intraday on Tuesday. But we should also consider some other points.

No doubt coal India has to face tough competition in the market after coming of private coal companies. But still it does not look too bad for the stock for medium to long term. It produces non cooking coal as well as cooking coal of various grades for different operations. The grade of mines which the company is operating has possibility to further increase the production of almost all grades of coal.

Stock maintains P/E of 22.83  with dividend yield of 6.41%. Currently coal india share price is at Rs. 311, which is on higher side as 52 week high is Rs.332 and low is Rs. 234.

Instead of volume, other parameters are also important. As it does not look like entry of private players will be totally negative for the company. So, I would Recommend that holding the stock will not be bad.