Coal India

Coal India Limited is entering the capital market on 18th October 2010, with an offer for sale by the government of 63.16 crore equity shares of Rs. 10 each, in the price band of Rs. 225 to Rs. 245 per share, through a 100% book building process. Retail category (constituting 25% of issue) and employees (constituting 10% of issue) will be offered a discount of 5%.The share will also be available for trading in F&O segment, since the day of its listing, which will be an additional feature for institutional investors and HNIs.

The issue, slated to be the largest primary market offering in the history of the Indian stock markets, will constitute 10% of the post offer paid-up capital of the company and will mop up Rs. 15,203 crore, at the upper band, net off 5% discount. The issue will close on 20th October for QIBs and on 21st October for HNI and retail category. The company will list on BSE and NSE on 4^th November 2010, a day prior to Diwali.

A Navratna PSU, Coal India is the world’s largest coal producing company with raw coal production of 43.13 crore tonnes in FY10, as also the world’s largest coal reserve holder, with total resources aggregating to 6,422 crore tonnes, as of 1st April 2010. The company operates 21 coalfields with 471 mines across 8 states in India, and accounts for over 80% of India's annual coal demand of about 50 crore tonnes.

For FY10, on a consolidated basis, the company reported total income of Rs. 52,592 crore with net profit of Rs. 9,837 crore, resulting in an EPS of Rs. 15.57 for the year. For Q1 FY11, the company clocked total income of Rs. 13,110 crore and net profit of Rs. 2,522 crore with EPS of Rs. 3.99, in line with the FY10 performance.

As of 31st March 2010, the company had equity of Rs. 6,316 crore and reserves of Rs. 19,533 crore, resulting in net worth of Rs. 25,849 crore. The book value was Rs. 40.92 per share. The company enjoys debt-free status, with a net cash position of close to Rs. 37,000 crore, as on that date.  

A lot has been said and discussed over the pricing of the issue and we do not see any concern, as far as its lower end of the band is concerned. At the upper band of 245 per share, it is seen mildly expensive and would have been better to have it at 235. Instead, a 10% discount to retail investors could have attracted a larger number of retail investors to the primary market, which is not seeing any increase in the investor base, with PSU companies having seen maximum of 11 lakh retail investors in any IPO till-date.

To make this IPO a success at the retail level, the company needs to attract around 15 lakh retail investors, which has never happened in case of any PSU IPO. Record number of investors (close to 11 lakh applicants) were garnered by NHPC, in August 2009, when the issue was made at Rs. 36 per share. However, this issue still has a negative memory in the minds of the investors, as they are yet to see their cost price.

In the employees category, 6.3 crore shares are being offered to the company’s 4 lakh employees, which will raise Rs. 1,470 crore, at the upper price band of Rs. 245, net of 5% discount. Thus, the company needs an average per employee application of Rs. 37,000 in the IPO. Thus, if retail and employee category gets fully subscribed with requisite number of applicants, it will give a big boost to the divestment move of the Govt.

Issue is recommended for investment, even at the upper price band of 245 per share. Retail investors, those who want to play safe, can sell their application at a premium, which is now ruling at Rs. 3,700, for application of 1 lakh. Those who are applying for 1 lakh, can expect an allotment of around 200 shares. This is likely to give a gain of about Rs. 4,800, considering discount of Rs. 12 per share and grey market premium of Rs. 12 per share, prevailing now.