Coal India Ltd IPO: Whether to Invest or Not

Coal India Limited (CIL) is coming out with an initial public offer of 631.63 mn equity shares through the issue with a price band of Rs 225-245, which is an offer for sale by the President of India, acting through the ministry of coal, Government of India. The offer shall constitute 10% of the post offer paid-up equity share capital of company. The issue opens on October 18, 2010 and closes on October 21, 2010. Retail investors are entitled to 5% discount. Please Click on below Read More Link to read full report.

Issue Objectives :

The objects of the Offer are to carry out the divestment of 631,636,440 Equity Shares by the Selling Shareholder and to achieve the benefits of lisitng the Equity Shares on the Stock Exchanges. The Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

Valuation and recommendation:

CIL’s status as the largest coal mining company in the world with access to the vast amount of coal reserves and highly favourable industry prospects driven by huge demand supply gap, is expected to result in strong growth prospects for the company. Further,the continuous improvement in labour productivity, use of better technology leading to a better control of costs and thus, leading to healthy overall profitability of CIL. The deregulated coal pricing regime gives CIL the power to fix the price for its produce which, along with the favourable demand supply position and cost competitiveness vis-à-vis imported coal, is likely to enable the consolidated entity to sustain its healthy profitability. We value the stock at Rs. 317 by using the DCF method (WACC: 13.50% and Terminal Growth 5%), which offers an upside of 41% over the lower end of the price band and 30% at the upper end. Going forward, we expect CIL’s consolidated revenues and PAT is likley to grow by 10% to 12% from FY11E to FY15E. Thus, we recommend investors to Subscribe to the issue.