IPO Watch- Coal India IPO

State-owned firm Coal India Limited is all set to launch its IPO this month.  The Government is aiming to sell 10% share of its equity to raise funds for long-term policy goals like poverty elimination and infrastructure development. The company expects to raise around Rs.16,500 crore through this stake sale. The offer price is fixed at Rs.225-245 per share.  The employees of Coal India Ltd and retail investors will get a 5% discount to the issue price. 

The proceeds from the stake sale would also give Coal India an added leverage to buy coal mines overseas. Although among the largest coal producing nations, the country’s manufacturing units and power plants have been facing coal shortage for quite sometime.

The IPO is well positioned as far as the Indian stock markets are concerned.  Looking at the credentials of the company, the IPO should be a success. The company is not only the largest coal producer but also one of the largest reserve holders of coal in the world. It has strong financials and execution capabilities.

As of April 1, 2010, it had total coal resources of 64,786 million tons comprising Proved Geological Reserves of 52,546 million tonnes, Indicated Geological Reserves of 10,298 million tons and Inferred Geological Reserves of 1,942 million tonnes. From the total coal resources of 64,786 million tonnes, 30,356 million tonnes has been considered for mining studies. Out of these, 21,754 million tonnes have been estimated as the Extractable Reserves. The company produced 431 million tonnes of coal in 2009-10 and is targeting an output of 461.5 million tonnes in the current fiscal.

It reported a net profit of Rs 8,312 crore on revenues of Rs 52,088 crore for the financial year-ended March 2010, against a net of Rs 2,078 crore on revenues of Rs 45,979 crore, in the previous year.

At upper price band of Rs. 245, the stock is available at 17.1 and 19.5 times of 2011 and 2012 expected EPS, respectively. The company contributes more than 82% to the country’s coal production and with a large reserve is sure to do well in the future. This IPO is an opportunity not to be missed for investors seeking value addition to their portfolio.