Coal India Limited

History of Coal India Limited

In order to provide for a higher growth in coal sector to meet the growing energy needs of
the country, the Government in 1973, nationalized the coal mines by enacting the Coal
Nationalization Act. Pursuant to the nationalization of coal mines, our Company was
incorporated as a private limited company with the name of 'Coal Mines Authority Limited',
under the Companies Act on June 14, 1973, and in terms of notification no. G.S.R. 345(F)
dated July 9, 1973, issued pursuant to the provisions of Section 5 of the Coal Nationalization
Act certain nationalized coal mines were vested in our Company by the Central Government.
Thereafter in 1975, Department of Coal, Ministry of Energy, GoI, with a view to integrate
and streamline the structural set up in a manner which could be conducive to a more
efficient administration, issued letter no. 38011/1/1/74-CAF dated September 27, 1975,
providing for the re-organisation of 'Coal Mines Authority Limited' as 'Coal India Limited',
which was to be responsible for the entire coal mining sector owned and controlled by the
Central Government. 

Pursuant to the nationalization of coal mines and during the period upto 1991, our Company
was able to enhance the growth rate of coal production from a CAGR of 2.18% at the time
of nationalisation in Fiscal 1974 to a CAGR of 5.63% by Fiscal 1991. However during this
period, due to certain macro-economic and socio economic factors, our Company continued
to operate certain legacy mines inherited pursuant to the nationalization and to operate
certain new projects irrespective of financial viability. Further, on account of certain internal
reasons and policy issues, our Company's accumulated losses in Fiscal 1991 and overdue
liabilities to the Government in Fiscal 1993, reached Rs. 24,989.80 million and Rs. 23,113.10
million respectively. Thereafter, post 1991 upon our Company achieving certain milestones
and certain policy changes initiated by the Government our Company endeavoured to
consolidate its financial position.

Major Events and Milestones :

2009-10 :

Award of the Scope Excellence Award to our Company by the Standing Conference of Public
Enterprises for the year 2007-08.
Establishment of Coal India Africana Limitada, a foreign subsidiary in Mozambique;
Conversion of our Company into a public limited company.
Award of 'Mini Ratna' status by the Department of Public Enterprises, GoI, to CMPDIL.
Receipt by our Company of a composite score of 1.47 and rating as "excellent" for the year
2007-2008 by Department of Public Enterprises, Ministry of Heavy Industries & Public
Enterprises, GoI.

2008-09 :

Award of 'Navratna' status to our Company by the Department of Public Enterprises, GoI, for
our operational efficiency and financial strength, which affords greater operational freedom
and autonomy in decision making.
Overall production of coal by our Company and our Subsidiaries, crossed 400 million tonnes.

Year Awards / Accreditations

Conferred the "SCOPE Gold Trophy 2007-08" for Excellence and
2008
Outstanding Contribution to the Public Sector Management"

Conferred the "World's Largest Coal Producing Company Award" at

the first Dalal Street Investment Journal PSU Awards, 2009
2009 Ranked among the top five finalists in the 11th Anniversary of
Platts Global Energy Awards 2009, in the 'Energy Producer of the
Year' category

Chairman and Managing Director of our Company was conferred

2010 with the "CEO with HR Orientation Award" by the Council of World
HRD Congress at the Global HR Excellence Awards Ceremony 2010

Return on Investment:

Coal India’s Initial Public Offering (IPO), opening on 18th October 2010, merits
attention because the stock has all the qualities required for an investment-
grade stock.
The best thing about the Coal India IPO is the pricing of the shares. The
Government has announced that the price band for the offer of shares of Coal
India will be Rs. 225-245 per share.
Coal India is offering a discount of 5% for retail investors which means that the
price band will be Rs. 214 to 233.
At the FY 2010 consolidated & diluted PE of Rs. 15.56, Coal India’s PE (after
retail discount) works out to 15 at the higher end of the price band.
However, it must be borne in mind that Coal India has cash & bank balances of
Rs. 39,077 crores in its balance sheet as of 31st March 2010. Coal India’s total
equity capital is 631.60 crores shares. That means the cash & bank balance per
share is Rs. 62. If this is deducted from the price paid, one is only paying Rs.
171 per share of Coal India resulting in a PE of only 11 at the higher end of the
price band.
This is quite reasonable given that Coal India has a Return on Net Worth
(RONW) of 38% in FY 2009-10 and a 3 year weighted average of 30%.
The other important aspect of Coal India is that it is presently selling its coal at
about $22-23 per tonne while coal imported from Indonesia sells at $45-50 a
tonne. The reason for the steep price differential is because Coal India sells
“unwashed coal” or coal containing impurities. Coal India has stated that it is
setting up 20 washeries and has decided that all new coal mines producing at
least 2.5 million tonnes (mt) a year will have captive washeries.
The result of this exercise is that in five years, the price of coal produced
by Coal India will be comparable to the price that customers are willing to pay
for imported coal. Coal India’s management stated that in five years at least
50% of the coal sold by Coal India equal to approximately 300 million tonnes
would be sold at international prices.
This augurs very well for the investors of Coal India. In the current fiscal, Coal
India’s EPS is expected to increase by at least Rs 5 according to the
management of Coal India. It was stated that over the next three years, Coal
India could be expected to register a substantial expansion in operating margins
from 22% in FY10 to 30% in FY13 led by improved labour efficiency, focus on
beneficiated coal and technology upgrades.
Coal India’s IPO pricing is also competitive in comparison to the overseas
players as can be seen from the attached image. So, Coal India has all the
attributes to be a core part of an investor’s stock portfolio.
Coal India IPO

ISSUE DETAILS

OCT 18 -21, 2010

Issue Period

Issue Size / FV 63,16,36,440 equity shares of Rs

10 each.

Price band Around Rs 200/-

Issue Type 100% BOOK BUILDING

Objects Divestment. The Company will

not receive any proceeds from
the issue.

IPO Grading/Agency CRISIL GRADE - 5/5

CITI GROUP, DEUTSCHE

Book Running Lead BANK, B of A Merrill Lynch,
Manager/s ENAM, KOTAK, MORGAN
STANLEY.

FINANCIALS:

(CONSOLIDATED)   -  RS IN CRORES
2008 2009 2010
TOTAL REVENUE 38616.69 46064.06 52592.29
 NET PROFIT   5243.27   2078.69   9622.44
 EPS (Rs)         8.30         3.29        15.60
EQUITY 6316.36 CR

STRENGTHS:

 The largest coal producer and one of the largest reserve holders of coal in the world.
 Well positioned to capitalize on the high demand for coal in India. 
 Track record of growth and cost efficient operations. 
 Strong track record of financial performance. 
 Strong capabilities for exploration, mine planning, research and development.
 Experienced senior management team. 
  Capitalize on the significant demand-supply gap for coal in India. 
 E-Auction pricing mechanisms. 
 Well positioned to acquire strategic international resources or mining rights and
identify joint development opportunities. 

INDIAN COAL INDUSTRY

As of April 2009, the geological resource of Indian coal was 276.81 billion tons (Source: GSI,
GoI). In India, coal is the prime fuel used to fire thermal power plants due to its availability
and affordability. Coal is the dominant source of energy and met 52.4%, while oil and natural
gas met approximately 41.6%, of the total primary energy requirement of India in fiscal 2009
(Source: BP Statistics). As projected by the Planning Commission of the GoI in the
Integrated Energy Policy, 2006, coal is projected to meet over 50.0% of the primary
commercial energy requirement by fiscal 2032. The coal sector in India is primarily
dominated by the PSUs under the central and the state governments, as more than 90.0% of
the coal produced in India in fiscal 2009 was by government owned companies (Source:
CRISIL Coal Outlook). 

COAL RESERVES AND RESOURCES

As of April 1, 2010, CIL had total coal resources of 64,786 million tons, comprising,  Proved
Geological Reserves of 52,546 million tons, Indicated Geological Reserves of 10,298 million
tons and Inferred Geological Reserves of 1,942 million tons. From the total coal resources of
64,786 million tons, 30,356 million tons had been considered for mining studies (mine
planning and feasibility studies), and the remaining coal resources of 34,430 million tons had
not yet been considered for such mining studies. Of the 30,356 million tons of coal resources
that had been considered for mining studies, 21,754 million tons has been estimated as the
Extractable Reserves.

PRICING OF COAL

The pricing of coal was deregulated pursuing to the colliery control order 2000 with effect
from January 1, 2000 subsequent to which  the coal producing companies were entitled to fix
the coal prices on their own and revise the same periodically. The pricing of coal is also
based on factors such as the type of coal, its net calorific value, the content level of
impurities. The coal price is revised considering the escalation in input cost, inflation and
landed cost of imported coal. In India, coal price is highly competitive at all destinations of
the country and rise in price position after deregulation has been less than inflation.

SUBSIDIARIES OF CIL:

         Bharat coking coal limited.

        Central Coalfields Limited
        Western Coalfields Limited
        Eastern Coalfields Limited Central Mine Planning and Design Institute Limited (CMPDIL)
        Indian Institute of Coal Management (IICM)
        Mahanadi Coalfields Limited
        South Eastern Coalfields Limited
        North Eastern Coalfields Limited.
        Northern Coalfields Limited

VALUATION AND RECOMMENDATIONS

The issue is likely to be priced around Rs 200/- At this price, the Company demands a
valuation of 13x on its estimated EPS of FY 11. INVEST.
CIL’s vision is to emerge from the position of domestic leader to leading global player in the
energy sector by adopting best practices from mine to market with due care to environmental
and social sustenance.