Coal India

New Issue Analysis - Coal India

Coal India, a Navratna company, is entering the primary market floor. Through this offer government is offering of 63.16 crore equity shares of Rs. 10 each, in the price band of Rs. 225 to Rs. 245 per share. The issue which opens on 18th Oct 2010 will close on 20th October 2010 for the Qualified Institutional Buyers (QIB) and will close on 21st October 2010 for the other investors. Retail category which constitutes 25 per cent of issue and employees constituting 10 per cent of issue will be offered a 5 per cent discount to the issue price. The share will also be available for trading in F&O segment, since the day of its listing. Coal India which is slated to be the largest primary market offering, where Government of India will mop up Rs. 15154 Crore, at the upper band, net off 5 per cent discount allowed to retail investors and employees.

A Navratna PSU, Coal India is the world’s largest coal producing company with raw coal production of 431.26 million tonnes in FY10. It is also the world’s largest coal reserve holder, with total resources aggregating to 6, 4786 million tonnes, as of 1st April 2010. Here the proven reserves are 52546 million tonnes and the indicated reserves stand at 10298 million tonnes. Going by the current annual production, the existing reserves are enough for more than 45 years of mining. The company operates 21 coalfields with 471 mines (163 open cast and 273 under ground) across 8 states in India, and accounts for over 80 per cent of India's annual coal demand of about 500 million tonnes.

On the financial front, 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.

As mentioned in our cover story on Coal India (Ready to Fire Up the Portfolio, Dated 13-26 Sept, 2010), for FY11 we expect the bottomline of the company in the range of Rs 11800 crore resulting in the EPS of Rs 18.68. This profit figure has been arrived at considering demand supply situation, price hike since October 2009 and reduction in the number of employees. So based on the P/E of 15 (as enjoyed by the international coal players) the fair price is arrived at Rs 280 (Rs 18.62*15x). So even at the higher price band the offer has kept something on the table for the investors. Hence considering all these factors along with what we had mentioned in our cover story, we recommend the investors to go for the IPO.

Shareholding Pattern	Pre Issue	Post issue
Promoters	99.99	90
Promoters Group	0.01	0
Public	0	10
Total	100	100
ISSUE INFORMATION	Rating 60
Issue Opens On	18-Oct-10
Issue Closes for QIB Bidders	20-Oct-10
Issue Closes for Others	21-Oct-10
Fresh issue shares	63.17 Crore equity shares
Price Band (Rs)	Rs 225-245
Issue route	Book Building
Promoters	Government of India
Post issue Equity	631.63 crore equity shares
Minimum Bid	equity shares
Lead managers	Citi Global Markets, Deutsche Bank, ENAM Securities
Listing	BSE, NSE
QIB Portion	28.43 Crore equity shares
Non Institutional Portion	8.52 Crore equity shares
Employee Reservations	6.31 Crore Equity shares
Retail Portion	19.90 Crore equity shares

Financials (FY10)	Coal India
Total Income	52,592.23
Operating Expenses	38,573.70
Operating Profit	14,018.53
Interest	136.46
Net Profit	9,833.70