Coal India Limited, the mother of all IPO’s, India’s largest ever IPO is tapping the capital markets with an offer for sale of 10% of its equity in a price band of Rs 225-245. The issue size is 63.16 cr shares and the Government would raise between Rs 14,212 crs to Rs 15,475 crs. The issue opens on Monday the 18th of October and closes on Thursday for HNI’s, Retail and employees and a day earlier for QIB’s.
| Price Band | Rs 225 – Rs 245 |
| Offer size in shares | 63,16,36,440 Equity Shares |
| Issue Size | Rs 14,211.82 crs – 15,475.09 crs |
| Reservation for Employees | 6,31,63,644 Equity Shares |
| Net Offer | 56,84,72,796 Equity Shares |
| QIB’s | 28,42,36,398 Equity Shares |
| Non Institutional Investors | 8,52,70,919 Equity Shares |
| Retail Investors | 19,89,65,479 Equity Shares |
| Marketcap Post Listing | Rs 1,42,118.20crs at lower band and Rs 1,54,750.90 crs at higher |
| Book Running Lead Manager | Citigroup Global Markets India Private Limited |
| Deutsche Equities (India) Private Limited | |
| DSP Merrill Lynch Limited | |
| Enam Securities Private Limited | |
| Kotak Mahindra Capital Company Limited | |
| Morgan Stanley India Company Private Limited | |
| Syndicate Members | Kotak Securities Limited |
| Discount to Employees | 5% Discount to Retail post book built price being discovered |
| Discount to Retail | 5% Discount to Retail post book built price being discovered |
| Isssue Opening Date | Monday 18th October |
| Isssue closing date for QIB’s | Wednesday 20th October |
| Isssue closing date for all others | Thursday 21st October |
| IPO Grade | CRISIL, ICRA and CARE grade 5/5 indicating strong fundamentals |
| Paid -up Capital | 631,63,64,400 Equity Shares |
| Bid Lot | 25 shares |
| Bidding Amount for Retail | 400 shares at Rs 245 or Rs 98,000 per application |
Business
Coal India Limited as the name suggests is in the business of coal production. Coal India is the largest coal producing company in the world based on the raw coal production of 431.26 million tons in fiscal 2010. It is also the largest coal reserve holder in the world and has reserves of 18,862.9 million tons of which 10,595.1 million tons are proven reserves and 8,267.8 million tons of probable reserves. India is the world’s third largest producer and consumer of coal and Coal India’s production accounted for approximately 81.9% of coal produced in India in 2009. Of the total coal produced in India almost 77% of the same was consumed for power generation.
Coal India currently operates 471 mines in 21 major coalfields across 8 states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (which include both open cast and underground mines). It produces non-coking coal and coking coal of various grades for diverse applications. Non-coking coal represents a substantial majority of raw coal production and represents over 90% of total production of raw coal.
Coal produced by Coal India is sold in the Indian market to large thermal power generation companies in the public and private space. It also sells to steel and cement producers and other industrial companies. Since October 2007 the company sells coal under long term fuel supply agreements (FSA).
Objects of the issue
The objects of the offer are to carry out the divestment of 63.16 cr shares by the selling shareholder (GOI) and to achieve the benefits of listing the equity shares on the stock exchanges. COAL India will not receive any proceeds from the offer and all proceeds shall go to the selling shareholder.
Financials
Coal India had operating income from coal sales of Rs 40,810.81 crs for the year ended March 2009, Rs 46,684.29 crs for the year ended March 2010 and Rs 11,940.33 crs for the first quarter ended june 2010. The other income for the same period was Rs 5,119.65 crs, Rs 5,240.84 crs and Rs 1,177.74 crs. The total income therefore is Rs 46,064.06 crs for March 09, Rs 52,592.29 crs for March 2010 and Rs 13,110.03 crs for the quarter ended June 2010. Its net profit after tax was Rs 4,062.62 crs for March 2009, Rs 9,833.69 crs for March 2010 and Rs 2,521.78 crs for the quarter ended June 2010.
The EPS for the company is Rs 6.43 for March 2009, Rs 15.57 for the year ended March 2010 and Rs 3.99 for the quarter ended June 2010 and Rs 15.97 on an annualised basis.
Comparison
Coal India has not compared itself with any other players because there are no listed players in this space in India. There are many global players worldwide but do not compare with Coal India in size or reserves.
Valuations
There is no dilution post this IPO as it is an offer for sale only. Based on March 2010 numbers the shares are being offered at a PE multiple of between 14.45 times at the lower end of the price band of Rs 225 to 15.74 times at the upper end of the price band of Rs 245. Since no comparables are there in the Indian space, this seems a fair valuation considering the growth, reserves and the possibility of higher prices and better efficiencies. If one were to annualise the quarter numbers the PE would reduce to 14.09 at the lower band and 15.34 times at the upper band.
Growth drivers
Coal India is implementing steps to increase the realisation of coal sales by selling more of beneficiated coal, use of e-auction, linking high quality raw coal price with imported coal parity. The company is also in the process of setting up 20 coal beneficiation plants with proposed feedstock capacity of 111.1 million tons per annum. Looking at the huge demand, it is expanding capacity by 80 mtpa and also modernising its operations to use bigger and more advanced machinery for better utilisation and lowering costs. All these measures would help Coal India produce more coal and keep its costs under control. Coal in India is sold substantially cheaper than international prices and it would be the endeavour to maximise the efficiencies and also narrow this gap going forward.
Coal India is in an unique position where it is an industry where there is a demand supply mismatch. The demand is substantially higher than the supply and the alternate to supply which is from imported coal is substantially higher than Indian coal. Private exploration and mining blocks have been given but the progress on them is extremely unsatisfactory and leaves a lot to be desired. Looking at the prospects, opportunities, demand supply mismatch and size of Coal India, investment in the IPO is warranted. It would provide a decent return to investors in the short run or on listing and also in the medium and long terms.
Conclusion
There is plenty of opportunity which Coal India needs to exploit and investment in this share would offer money making opportunities. I recommend investors subscribe to this issue and make a good start to Diwali this time. Readers would be pleased to know that shares of Coal India would be listing on the Thursday the 4th of November, one day before Muhurat trading on Friday the 5th of November.
SEBI Disclaimer: – I intend to subscribe to the above issue.
