Coal India IPO subscribed 34% on day one

FIIs put in bids for 15.55 crore shares

The initial public offer (IPO) of state-run Coal India was subscribed 34% on the first day of the issue today, 18 October 2010, data on NSE website showed. The IPO got bids for 21.34 crore shares, compared with 63.16 crore shares on offer.



The qualified institutional buyers (QIB) category was subscribed 63%, with foreign institutional investors putting bids for 15.55 crore shares, and domestic financial institutions, which includes mainly the insurance firms, putting in bids for 2.24 crore shares. Mutual funds put in bids for 51,125 shares. A total 28.42 crore shares are reserved for the QIB category in the Coal India IPO.

The Coal India IPO, which is billed as India's largest issue ever, closes on Thursday, 21 October 2010. The government plans to raise about Rs 15,000 crore from divestment of 10% stake in Coal India. The government has set Rs 225-245 per share price band for the Coal India IPO.

Retail investors and company employees will get shares at 5% discount on the final issue price to be discovered through the book-building route. The Indian government is selling 63.16 crore Coal India shares, or 10% of the company.

Coal India (CIL), a Navratna public sector undertaking under the Ministry of Coal, Government of India, is the largest raw coal producing company as well as largest coal reserve holder in the world. CIL operated 471 mines in 21 major coalfields across eight states in India as of March 31, 2010 producing non-coking coal and coking coal of various grades for diverse applications. While non-coking coal is used in thermal power plants and the cement industry, coking coal is largely used in metallurgical industry. In FY 2010, about 91.6% of the total coal produced was of non-coking coal and the balance was coking coal.

CIL is largest coal producer in the country as well as in the world with its production for the year ended March 2010 (FY 2010) at about 431.26 million tonnes, which represents 82% of India's coal production. Further, the company is also the largest coal reserve holder in the world as of 1 April 2010, with about 18862.9 million tonnes of total reserves and 64218 million tonnes of total resources. India is the world's third largest producer and consumer of coal, given strong growth in economy.

Consolidated sales of the company for the fiscal ended March 2010 was higher by 14% to Rs 46689.29 crore and the net profit was up by 142% to Rs 9833.70 crore, albeit on a lower base. The EPS for the fiscal was Rs 15.20. The offer price band of Rs 225-245 discounts the FY2010 consolidated earning by 14.8-16.1 times, which is largely in line with the P/Es at which other global coal majors (especially Asian) are trading.

However, while other global majors' earnings are more sensitive to fluctuations and cyclicality in coal prices, Coal India's earnings are largely immune to global coal price fluctuations as Indian coal prices as directly/indirectly determined/influenced by government and are much lower than international prices and their trend does not bear any relationship with global coal prices.

It is expected that there will be strong post-listing interest in the scrip even at higher P/E multiple due to strong institutional (especially FII) demand as it is the only Indian stock which gives exposure to the Indian coal industry and the scrip's likely inclusion in leading Indian and global indices.