Coal India IPO subscribed more than 10 times

Gets bids for 656.15 crore shares

Investors have made a beeline for Coal India shares as the initial public offer (IPO) of the state-run coal giant was subscribed more than 10 times by 16:00 IST on the last day of the bidding for the issue by qualified institutional bidders (QIBs) today, 20 October 2010. The IPO got bids for 656.15 crore shares, compared with 63.16 crore shares on offer.



Bids at cut-off price totaled 12.35 crore shares. Only retail investors are allowed to bid at cut-off price in an IPO. A total of 19.89 crore Coal India shares are reserved for bidding by retail investors.

Bidding for the Coal India IPO by non-institutional investors, which mainly consists of high networth individuals and corporates, and retail investors ends 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, which is billed as the country's largest issue ever.

Retail investors and the company's 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.