Coal India…A Mining Giant’s IPO…will you need to be rescued if you invest at Rs 245 ?…Unlikely…so go ahead and be patriotic and Apply in the IPO

Coal India IPO has been marketed and analysed for months now…so I’m not really going to deep underground to check it out….there’s enough evidence above ground to assess this IPO

You don’t need to go deep into the Coal Mines to Invest in this Mining Giant’s Equity…The Government of India itself has surfaced to offer for sale Equity Shares of it’s Mining ‘Megapoly’ Coal India

The Mega IPO fo Rs 15000 crs + opened with a flourish yesterday in the price band of Rs 225 to Rs 245 with 5% discount offered for retail Investors….assuming it will be priced at the top end of Rs 245,retail Investors will get the shares at Rs 233…they can apply for upto 400 shares and with a likely oversubscription of two to three times in the retail segment,they should be alloted @ 150 shares…the grey market premium that was hovering at Rs 15 has moved up to Rs 30…so with Listing scheduled for November 4,2010,just a day before Diwali it is likely that retail Investors should get atleast Rs 4000 gains on allotment of 150 shares from a maximum application of 400 shares for Rs 98000…that’s a return of over 4% in just 15 days….nows that’s cool !…so even the short term may offer you an opportunity here…some Diwali Bonus……

However,Coal India Pricing of Rs 225 to Rs 245 is not exactly a bargain nor is it expensive…it’s fair pricing…The Government has learnt from it’s past mistake in pricing NHPC high at Rs 36……in fact Coal India looks cheap if you consider a few years down the road….There is no Equity dilution as all shares are an Offer for Sale….The Company has spruced up it’s bottomline for this IPO to show an EPS of over Rs 15….that’s a 16 Multiple at top end Rs 245 IPO pricing…if it can sustain this growth in earnings to a 20% CAGR one can expect EPS of over  Rs 18 and near Rs 22 in FY 11 and FY 12 going forward…so you are getting Coal India at 10 to 11 times FY 12 assumed EPS…..Rs 300 Price looks likely next year…so thats 20% to 30% likely returns inside 18 months

What’s the potential downside  ?….Coal India may show lower earnings growth and even lower profits in the next two years…..Unlikely…also PE Multiple allowances may get measured…Likely if there is an Earnings Growth downturn in Corporate India

Bottomline is would you need to be rescued anytime in the future if you Invest in Coal India at Rs 245 !?…..Unlikely…even if the Secondary Market Price drops below IPO Pricing ,it will not be a permanent diminution read more