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

Ignore the IPO Hype and Grey Market Premiums…it will eliminate any expectations for Gains in the Short Term…remember the early 2008 Reliance Power IPO Hype,Record Oversubscription and Grey market Premiums and the Post IPO Listing Disaster…not really an apple for apple comparison…different sectors and Coal India is an existing Giant Monopoly with Navratna Status and Good profitability….go back a decade and you will recollect Cinevista IPO at Rs 300…record Oversubscription of over 160 times with Grey Markets offering Rs 1500!…crashed on listing …was below Rs 10 for years……

So Go ahead and be Patriotic and Invest in Coal India for the Long Term….You will not need to be rescued….Make it a part of your Core Segment….It’s not everyday that you get a piece of a Navratna IPO Cake at Fair Pricing…You made decent money from Oil India and NTPC…. you will benefit from Investment in Coal India too

Employees are not supporting the Coal India IPO as they are protesting against the Company going public…so some part of their quota too will be rolled over for public allotment….just a last thought….many years ago I was reviewing the World’s Biggest Companies ranked on many parameters…Coal India had the dubious distinction of being No 1 in the world…for the largest Employee force in the world !…over 5 lakh employees at the time…it was seen as affecting company productivity and efficiency…..no wonder the Employees are objecting to the IPO…it will bring in better Corporate Governance with more transperancy and accountability…….years ago even employees of our Oil majors had opposed IPOs of their Companies

So just a  day before Diwali,our Market Cap is going to shoot up dramatically by over US  $ 35 Billion when Coal India gets listed on November 4,2010…..Big Deal,Mukesh Ambani would say…”I’m personally worth much more….I can buy out 100% of Coal India !”….Now ,wouldn’t he love too !…but then he would have to dilute his Reliance holdings to do so….just a thought !      

Cheers !   

3 thoughts on “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

  1. till 2 pm today retail portion got subscribed only .47 times but instituional investors over 10 times.so if i apply for 400 shares(assume bid is closed) at 225 lower band.will i get full allotment or instituions will get a pie just bcos they quote in upper band

  2. Dear Ramurthy,

    Coal India is a book building IPO in the Price Band of Rs 225 to Rs 245….The Company will decide the Issue Offer Price at any Price in this range after the Issue closes…..All Retail Bids at this Offer Price or above will be entitled for Allotment or proportionate allotment in case of oversubscription…any bid below this decided Offer Price will be rejected….also technically bids put at cut-off price,which is the decided Offer Price can be rejected…it is therefore safer to bid at upper end Rs 245….in case offer price is below this ,you will get the differential refund for the allotted shares plus full refund for shares not allotted….Retail Segment should get atleast two times subscription…most bids will be at cap price of Rs 245….therefore bid at Rs 245 and expect proportionate allotment at 5% discount to the Offer price…I guess the Cap price of Rs 245 itself may be announced as the Offer Price

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