Coal India’s Q2 Paradox: Why Shares Rose Despite a 30% Profit Decline

The quarterly results of **Coal India Limited (CIL)**for the second quarter of FY 2025-26 revealed a sharp decline in profit after tax—approximately a 30 % year-on-year drop—despite which the company’s shares experienced a firm response. While the profit slide might ordinarily unsettle investors, several underlying factors stirred a different reaction in the market.

What’s the Context

In the second quarter of FY2025–26, CIL reported a consolidated net profit of ₹4,262.64 crore, marking a steep 32.6% year-on-year drop from ₹6,274.80 crore in Q2 FY2024–25. Sequentially, the decline was even sharper at 51.2%, down from ₹8,734.17 crore in Q1 FY2025–26. Revenue from operations stood at ₹30,186.70 crore, down 3% YoY and 15.78% QoQ, reflecting pressure on both sales volume and realisations.

EBITDA for the quarter came in at ₹6,716 crore, registering a 22% YoY decline, with EBITDA margins compressing to 22.2% from higher levels in the previous year.

Despite the earnings miss, Coal India declared a second interim dividend of ₹10.25 per share (102.5% of the face value), with the record date set for 4 November 2025, and the payout scheduled for 28 November 2025. This follows the announcement of the first interim dividend of ₹5.50 per share in July.

The company’s financial performance fell short of analyst expectations on most fronts, with net profit missing the projected ₹5,544 crore and revenue slightly exceeding the expected ₹29,587 crore.

Despite Loss, Why Coal India Share Price Surged

Here are some possible reasons that have helped CIL gain momentum in the market:

Strategic Levy Announcement

Coal India’s decision to impose a ₹300 per tonne levy across all mines under Northern Coalfields Ltd (NCL) from May 2025 was viewed positively. This move is expected to generate incremental revenue and improve cost recovery in high-extraction zones. Investors interpreted the levy as a proactive pricing strategy to offset rising input costs and regulatory burdens.

Strong Institutional Support

While brokerages like Citi warned of a 3% downside, Jefferies projected a 13% upside for Coal India. This divergence in views created speculative interest, especially among institutional investors who saw value in the stock’s long-term fundamentals. The mixed ratings led to increased trading volumes and short-term momentum. Jefferies’ bullish stance was based on volume recovery and dividend yield.

Stable Offtake Volumes

Despite a marginal dip in production, Coal India’s offtake volumes remained steady in Q4 FY25. This suggests that end-user demand—particularly from power and steel sectors—has not weakened, even as global commodity cycles fluctuate. Investors viewed this as a sign of demand resilience, especially in the domestic market. Stable offtake supports revenue visibility and reduces inventory risk.

IPO Plans for Subsidiaries

CIL is planning to list its subsidiaries, including Bharat Coking Coal Limited and Central Mine Planning and Design Institute. This parameter has revived investor optimism. The possible Upcoming IPO is expected to improve valuation, increase transparency, and attract fresh capital. The monetisation of subsidiary assets matches government divestment goals. Investors anticipate a re-rating of the parent company’s stock as these listings progress.

Expansion of Power Sector

Coal India is making a strategic shift towards securing power generation (including coal gasification). The company is simultaneously pursuing joint ventures and captive power, diversifying revenue. This strategic step is viewed as a protective measure against deteriorating thermal coal margins and regulatory risks.

Government Backing

As a state-owned enterprise, Coal India receives policy stability and budgetary backing. Recent government commitment to coal supply to power plants and infrastructure investments has restored confidence in investors everywhere. Coal India has a strategic role in India’s energy security, insulating it from regulatory volatility. Following implicit state support and fiscal incentives in coal logistics, the environment is now conducive to equity appreciation.

Market Rotation

With growth stocks under pressure due to global interest rate concerns, investors have rotated into value stocks like Coal India. Its low P/E ratio, high dividend yield, and asset-heavy balance sheet make it a classic value play.

What This Means for You as an Investor

Here are some points that investors may consider when tracking Coal India and large PSUs like it:

• It is a good idea to look beyond profit numbers and track other factors like dividend yield, production targets, policy changes, and valuation levels, since these often sway sentiment towards PSUs.

• The weakness of the past quarter is already partially in the price, and the next quarter’s results will be important in seeing if volume recovery and margins improve.

• For anyone following the sector closely, coal demand, power generation, and auction premiums will be something to watch, as all of these can matter, both for near-term performance and dividend sustainability.

• Broader market watchers have observed that diversifying helps manage volatility, especially in cyclical sectors like energy and commodities.

Closing note

The story of Coal India’s Q2 is not a simple case of “profit falls, shares fall”. Instead, it reflects how markets weigh multiple signals—dividend commitment, structural business positioning, production targets and valuation—alongside the headline numbers. For investors in India, especially, large PSUs like Coal India are often evaluated through a lens of yield plus stability rather than pure growth. Hence, while the 30 % drop in profit warrants attention, the share move shows that the market is choosing to focus on what comes after the quarter, not just what happened in it.

Sources

The Financial Express
The Financial Express
ZEE Business
The Economic Times
Investing View
Republic World
CNBC TV18