Coal India is up 24% this year – why is old school coal hot?

What’s happening: the stock of Coal India, the state-owned mining behemoth, is seeing a strong resurgence in investor interests this year, despite the growing prominence of clean energy. 

The rally in 2024 reflects India's complex energy needs and economic realities, which for the large part will continue to rely on conventional energy to power economic progress.

By the numbers:

• Stock is up 40% in the last 12 months, outperforming the Nifty 50 index
• Revenue growth of 15% year-over-year, reaching ₹1.18 trillion in FY2023
• Coal production hit record highs, crossing 700 million tonnes in FY2023
• Profit after tax increased by 62% to ₹28,125 crore in FY2023
• Dividend yield of 8.5%, one of the highest among Nifty 50 companies

What matters: Even as India pursues ambitious renewable energy goals, Coal still accounts for nearly 70% of India's electricity generation, displaying the dependence of the source for energy security and economic growth.

This is the primary reason for the stock’s outperformance.Rephrased, Reorganized, and Reworded Text:

Despite India's ambitious renewable energy targets, coal remains the dominant source of electricity, contributing approximately 70% of the country's power generation. This reliance on coal highlights its significance for energy security and economic growth.

The stock's outperformance can be primarily attributed to this.

The backstory: Long considered a sunset industry, coal mining in India has found new life due to:

1. Surging energy demand in a rapidly growing economy, with power consumption expected to double by 2040
2. Global energy crisis pushing countries back to coal, with international coal prices reaching $400/tonne in 2022
3. Improved operational efficiency and corporate governance, leading to a 25% increase in employee productivity over the last five years

Driving the news: Recent government policies have boosted Coal India's prospects:

• Allowing commercial coal mining, ending Coal India's monopoly but also opening new partnership opportunities
• Push for coal gasification projects, with a target of 100 million tonnes by 2030
• Emphasis on domestic energy security, aiming to reduce coal imports by 50% by 2025

Between the lines: Coal India's resurgence isn't just about coal demand. The company has been:

• Diversifying into aluminum and solar power, with plans to install 3 GW of renewable energy capacity by 2024
• Investing ₹6,000 crore in clean coal technologies, including coal-to-hydrogen projects
• Improving its ESG scores, rising from 'CCC' to 'B' in MSCI ESG ratings over the last two years

Yes, but: Challenges remain:

• Long-term global shift away from fossil fuels, with over 40 countries pledging to phase out coal at COP26
• Domestic push for renewable energy, targeting 500 GW of non-fossil fuel capacity by 2030
• Environmental concerns and stricter regulations, including potential carbon taxes

The other side: Critics argue that investing in coal contradicts India's climate commitments and could lead to stranded assets in the future. India aims to reduce its carbon intensity by 45% by 2030.

What they're saying:

• "Coal India's turnaround shows that traditional energy still has a role to play in India's growth story," says energy analyst Rahul Sharma. "Its low-cost operations and monopolistic position make it a cash cow."
• Greenpeace India's Ashish Fernandes counters: "This short-term gain could lead to long-term pain for both investors and the environment. Coal India needs a clear transition plan."

What to watch: 

• Government's balancing act between energy security and climate goals
• Coal India's progress in clean coal and diversification efforts, including its target to reduce carbon emissions by 20% by 2025
• Global energy prices and their impact on coal demand, particularly in key markets like China and Southeast Asia

The bottom line: Coal India's renewed favor with investors underscores the complexities of India's energy transition. While the company rides high now, its long-term success will depend on how well it navigates the inevitable shift to cleaner energy sources. For now, it remains a critical player in India's energy landscape, balancing profitability with increasing pressure to evolve.