Coal India IPO opens for subscription

Published on Mon, Oct 18, 2010 at 08:08

India's largest coal producing company Coal India's (CIL) initial public offer (IPO) has
opened for subscription today. The company aims to raise more than Rs 15,000 crore through the
IPO, which is the largest amount IPO in Indian history (previously Reliance Power was the
biggest IPO, which raised more than Rs 11,000 crore via IPO).

This IPO is a part of the government's divestment programme and the entire amount will
go to government, which will hold 89.99% stake post dilution. The issue will open for
subscription till October 20 for qualified institutional buyers and October 21 for non-QIB buyers.
Even the employees and retail investors will get 5% discount to the issue price.

Majority of experts as well as brokerage houses advice investors to subscribe to the issue
as they like the company's growth and believe that it would consistently grow in future as well.
"There is major demand for coal by power producing companies. Also Coal India provides cost
at lowest price and valuation looks attractive," they reason.

Everyone agrees that pricing of the issue is better-than-expectations. The government has
fixed a price band at Rs 225-245 a share and is offering more than 63 crore shares via IPO.

Prithvi Haldea, MD of Prime Database is happy with this price band. "I think this is a
very good valuation but the more important issue is that the institutional investors should find
this price attractive."

Futher he said the 5% discount will be good only in case the institutional response is very
high, but would have been elated if this discount would have been 10% because motive and
objective should be to get more and more retail investors. "Remember Reliance Power got 46
lakh investors for its IPO, Coal India could have got more. It still could happen even with 5%
discount provided the institutional response is very strong," he explained.

But Jagannadham Thununguntla of SMC Capitals said, a 5% discount is definitely a good

opportunity. "Though this 5% discount may not sound as such a big attraction in an FPO but in
an IPO it makes sense."

"Even in the large picture point of view it is a very good opportunity for India to increase
the Demat account penetration which has been a big problem in India because we hardly have
1.8 crore Demat accounts which is less that 1.5% of the Indian population. These are the kind of
IPOs which create that kind of excitement to increase the Demat account penetration," he
reasoned. Even Deven Choksey of KR Choksey Securities feels that the band is better than
expected and Thununguntla too says price band is quite reasonable and sensible. But SP Tulsian
of sptulsian.com feels quite expensive.
 We were expecting it on the higher side?between Rs 250-260 a share. This particular
price band is much better as far as the investors are concerned. It gives you an opportunity to
score on the listing thereafter, which I think is going to be positive, because retail investors are
getting it at Rs 225 a share,? Choksey said.

Coal India IPO opens for subscription

"It is the world?s largest coal company and it is so large that it is almost two times bigger
than the second biggest company. Even on the basis of the Rs 15 earnings per share (EPS) of
FY10, the company is coming at 14 times PE multiple which is extremely sensible. If somebody
is looking for stability in their portfolio be it institutions, high networth individuals (HNIs) or
retail, it is definitely a stock which warrants to be there in the portfolio," Thununguntla
explained.

However, for Tulsian is it quite expensive. He would have preferred a lower band. ?I
have been taking a call of Rs 220-230 a share because if you go by the international peers of
similar size they have all been ruling at a 11 to 13 PE multiple in the global market while if you
work this out in the upper band at Rs 245 this translates into a PE multiple of 15 or may be over
15, if I take an expected EPS of 16. So going by those standards definitely the issue price or the
issue band is quite expensive.?

Bankers to the issue feel that it will be a defining moment in history of Indian capital
markets.

Uday Kotak, VC & MD, Kotak Mahindra Bank said he is confident that the issue will see
strong demand across asset classes. He said, ?We are getting reasonably positive feel from
investors across the world. The IPO opens next week and so we will know what it means in real
terms. But the sense from the investors is positive interest.?

Kaku Nakhate, President & Country Head - India, Bank of America-Merrill Lynch
echoes Kotak's views. He told CNBC-TV18, ?I think this is a very strong asset for the country
itself and Coal India is one of the largest producers in the world. So if you ask me it's an easy sell
because people want to be associated with India and given that it powers the rest of the country, I
think it's not so difficult. I think it's a great company for people to invest in.?

Brokerage houses

Motilal Oswal has recommended subscribing the issue. It expects CIL to report earnings
CAGR of 14% till FY13, driven largely by 4.4% CAGR in average realizations, 6.6% CAGR in
dispatches and 297bp operating leverage, with EBITDA margins at 25.4% in FY13.

Motilal Oswal arrived at a price target of Rs 325/share, valuing Coal India at Rs 2,055
billion based on DCF methodology. "At this price target, the stock would trade at 17.6x FY11E
and 15.3x FY12E earnings. At the higher end of IPO price band of Rs245/share, the stock is
valued at 11.6x PER and 3.6x P/B on FY12E basis, at a meaningful discount to utilities like
NTPC, PGCIL, etc. Given the 'utility' model in 'commodity' business, coupled with the
characteristics of sellers' market, we believe that CIL will largely have a linear earnings
trajectory and impressive RoE / free cash generation," the report says.

Nirmal Bang has recommended subscribing the issue. "CIL is globally the largest coal
company, both in terms of reserve and production. Given the growing coal demand, short supply
of coal and CIL being the paramount player in India in its business, the outlook looks positive.
The prevailing global average P/E hovers around 20.0x and EV/EBITDA around 12.0x. CIL is
offered at 15.7x P/E multiple and 6.3x EV/EBITDA multiple of FY10 earnings which looks
attractive," the report says.

"The demand for coking coal is expected to grow by 9.7% and non coking coal to grow
by 11.3% till FY14 which augurs well for CIL as it has a significant share in the sector, one can
expect the company to perform well going forward. At the current price IPO is an attractive issue
for subscription particularly for those looking at long term gains," Gupta Equities said.

Challenges that Coal India is likely to face

Published on Tue, Oct 12, 2010 at 14:01

Coal India, the world's largest coal miner, is on its way to a public listing in India, slated
to be the largest-ever in the country.

The state-run company is offering 631.6 million shares or 10% of the company that could
fetch USD 3.5 billion. The IPO is slated to open on October 18.

Following are some details on Coal India's operations:

Facts and figure

 Coal India was founded in 1973 when the government nationalised many coal
mines to boost output under its own supervision.
 The company made a net profit of Rs 98.337 billion (USD 2.21 billion) in
2009/10 (April-March) on revenues of Rs 525.922 billion.
 A 10% sale for USD 3.5 billion would imply a total value for the company of
USD 35 billion with total share capital of Rs 63.16 billion.
 The company produced 431.26 million tonnes of coal in the year ending March
2010, up 6.82% year-on-year.
 The world's number two coal producer is China's Shenhua Group, that is seeing
an output of 360 million tonnes in 2010.
  The monopoly producer accounts for over 80% of India's total coal output and is
targeting production of 461.5 million tonnes in the current year which started in
April.
 The company has 471 coal mines, mostly located in eastern and central India,
seven subsidiaries and a workforce of 394,041 people.
 It wants to expand overseas to bridge the yawning gap between India's demand
and supply, and is in talks for buying mining stakes in Australia, Indonesia and
the United States.
 Coal India has been importing small amounts of coal and plans to issue a tender
for importing 6 million tonnes of coal this year mostly for power-maker NTPC
Ltd.
 The company has a total of 18,862.9 million tons of total reserves of which
10,595.1 million tons are proven.

Challenges

 Social problems are an obstacle to mine expansion with resistance from locals who are
concerned about displacement.
 Maoists, who say they are opposed to capitalism and have attacked some other state-run
firms in east India, are another hindrance to expansion.
 Bloated stocks of coal because of slow transportation have prompted top officials to
consider moving into power generation to use the inventories.
 Coal India will face competition from foreign miners as the government moves to reform
the coal sector and allow non-domestic players to bid for blocks in joint ventures.
 After selling shares, it will have to review its policy of discounting coal in order to strike
a balance between its social obligations to keep power cheap and keeping investors happy
with profits and dividends.

Coal India IPO oversubscribed 1.57 times

IANS, Oct 19, 2010, 05.55pm IST

State-run Coal India's $3.5 billion dollar initial public offering (IPO), the biggest in the
history of corporate India, was subscribed 1.57 times on Tuesday.

The issue at a price band of Rs.225-Rs.245 a share, received 991,179,700 bids against
631,636,440 shares on offer for sale till 4pm, according to data made available by the stock
exchanges.

At the higher end of the band, the IPO size will be to the tune of about Rs.15,400 crore,
making it the largest IPO in the history of Indian capital markets.

The institutional segment of the IPO was fully subscribed in the morning itself.
 The offer closes Oct 21 for retail and non-institutional bidders, while for large financial
institutions it would end a day earlier. The company is set to list on the stock exchanges Nov 4.

The mega public float, experts believe, is expected to attract foreign investors and lead to
a surge in dollar inflows, pushing the Indian rupee further up. It could cause a liquidity crunch
for a short while and lead to correction in the secondary market.

Coal India is the world's largest coal miner, producing over 80 percent of India's coal
through 471 mines across eight states. It produced 431.26 million tonnes of raw coal in 2009-10.

Coal India gets demand worth 26K cr, IPO over-subscribed 1.71 times

19 Oct, 2010, 09.10PM IST,PTI

Coal India's mega public offering generated bids, mostly from institutional investors,
worth 26,000 crore on the second day of the issue today, making the issue over-subscribed 1.71
times.

The government aims to garner up to Rs 15,400 crore through selling its 10 per cent stake
in the country's biggest share sale offer so far.

The issue, which opened yesterday, got total demands for more than 108 crore shares
against 63.16 crore equities on offer, data available with the National Stock Exchange showed.

In the portion reserved for the qualified institutional buyers (QIBs), the issue was
oversubscribed 3.39 times, as per the NSE data.

The issue closes tomorrow for institutional investors. QIBs in all probability will make a
beeline tomorrow on the last day of issue for them, analysts said.

The retail demand for the Coal India shares was only 35 per cent. The portion reserved
for high networth individual was subscribed 54 per cent.

Analysts said participation from retail investors will pick up in the last two days as they
usually follow the trend of institutional investors. Besides, there is one additional exclusive day
reserved for them (October 21).

As many as 19.89 crore shares were on offer for retail investors.

Meanwhile, terming the IPO as a landmark, Disinvestment Secretary in Ministry of

Finance Sumit Bose today said the issue will also get good response from retail investors.

"This is a great opportunity for the common man to have a stake in such a resource rich
company," Bose said.
 Employees quota was subscribed only 1 per cent, as per the NSE data. Coal India Ltd
Chairman P S Bhattacharyya said shares set aside for employees may not be fully subscribed due
to trade unions protests. "Trade Unions are not supporting the public issue, due to which there
may be less participations in the staff quota," he said.

Coal India trade unions are observing a protest week, against the company's public
offering.

The company has reserved 6.31 crore equities for the employees.

CIL is the world's largest coal prodcuer. It has a total manpower strength of 4 lakh as of
June-end.

The issue is priced in the range of Rs 225 and Rs 245 a share. The government is
divesting 10 per cent of its stake in the company.

At the upper end of price range, Coal India public issue is worth Rs 15,475 crore and at
the lower end it would fetch about Rs 14,211.81 crore.

The navratna company is expected to list on the domestic bourses by November 4.