Coal India (NSE: COALINDIA) shares are up 5% today and 10% over the past couple of trading days. The driver here is that the recently announced results were good and it’s expected that they will continue to be good. Providing power to a rapidly growing economy is one of those good businesses to be in after all.
The results were reported on Friday: “Coal India (COAL.NS) on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon. The state-run miner posted a consolidated net profit of 68 billion rupees ($816.3 million) for the quarter ended Sept. 30, up 12.5% from last year.It also beat analysts' estimate of 63.70 billion rupees, as per LSEG data.”
As ever, what drives a share price is not the results themselves. It’s how they differ from what people thought they would be. Logically this must be true. The current share price already includes all the information we know about. It’s therefore new information which changes that share price. That the results were better than expected is what matters here, not the levels of them themselves.
Coal India share price from Google Finance
The specific driver today seems to be more of that new information. Jefferies has raised its target price for the shares to Rs 385.That is, the expectation is that power demand will continue to rise and so therefore will that for coal.
In the larger picture we’re not so sure about Coal India: “Coal India (NSE: COALINDIA) shares are up 4,7% on the back of two announcements. COALINDIA shares obviously benefit from the report that production is up. But there’s also another announcement in the annual results, that they’re going to invest outside India in critical metals. We think this has all the makings of a disaster to come. This is not just because we’re biased against state companies - although we are - it’s because the mining world has a name for those working outside their area of expertise - The Simple Shopper. Not knowing the field being invested in is going to mean investing on bad to very bad terms. This is just how that real world works out we’re afraid.”
We’re fine with that business of coal in India. We think it’s going to continue to be a good business. We’re a lot less sanguine about spending the profits from that business on looking for critical metals outside India. We simply do not think that that sort of diversification really works. But maybe that’s just us.
