Coal India - Review + Recommendation

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Here is a Review of COAL India Limited, one of the Largest Mining Companies in the World will create History in the Indian Capital Market by raising a record Rs 15,000 Cr / USD 3.5 Billion.

Coal India - is offer for sale. Govt of India will get all the proceeds. CRISIL and ICRA have accorded a rating of 5/5 for the company (the only company to have received it)

Coal India Price Band - Rs 225 to Rs 245 [Retailers get discount of 5% ]  While Applying, you need to apply at CUT-OFF and Pay at the rate of Rs 245.
Lets assume the IPO is priced at Rs 245. Retailers get it at Rs 232.75.

Religare's Energy Analysts Suhas Harinarayanan and Suman Memani arrive at a price of 265 to 315 / share.

Coal India (CIL) commands a dominant 82% market share in India and hence offers the best play on the rising coal deficit in the country. Over the next three years, we expect CIL to register substantial expansion in operating margins from 22% in FY10 to 30% in FY13 led by improved labour efficiency, a focus on beneficiated coal and technology upgrades. This, in turn, would likely drive a PAT CAGR of 18% over FY11-FY13. We value CIL at between 7–9x FY12E EV/EBITDA, at which the stock would be priced in the range of Rs 265–315/sh (Rs 1,6165bn– 1,993bn). Key upside risks to our estimates include cash deployment towards further improving operational efficiencies and for international acquisitions, better pricing parity with imports, and a faster turnaround in subsidiaries (ECL and BCCL). Key downside risks are delays in land acquisition, inability to meet minimum contracted quantity (MCQ), and transport infrastructure bottlenecks.

COAL India Grey Market Price is already Rs 4000 / Application.

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CLSA's Natural Resources Analysts - Abhijeet Naik and Abhiskek Tyagi have the following views on COAL India IPO,

Coal India (CIL) is the world’s largest coal company by reserves and production. It sells coal at a big discount to global prices but enjoys high margins due to low production costs. Volume growth is likely to be ~5% over FY10-13 but ASPs should outpace costs due to more frequent price hikes and an improving product-mix, driving a net profit CAGR of 15%. We believe that CIL deserves to trade at a premium to global coal peers given much lower volatility of earnings and large headroom to raise prices in a supply-deficit environment. Our 1-year fwd value for CIL is Rs309-324 (mcap $43-45 bn).

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IIFL Analysts Gopal Ritolia, Anupam Gupta and Bijay Shah say that Coal India is a Black Diamond with the following note,

India’s coal shortfall is set to widen from 65mtpa in FY10 to 155mtpa by FY13 and 277mtpa by FY17. Additional Indian demand would amount to ~20% of current global trade in thermal coal, causing regional prices to firm up. Until now, there has been no direct play on this theme in the Indian equity market. Coal India’s (CIL) IPO is set to change this. CIL is in a sweet spot—its growth is limited by production, not demand. Its earnings are far less sensitive to global prices than those of global peers, as it sells ~75% of its output at quasi-regulated prices. Efficiency gains should contribute to 13% CAGR in free cash, from Rs83bn in FY10 to Rs195bn in FY17. We value CIL between Rs300 to Rs345 per share – implying an upside of 22-41% to the upper end of price band. SUBSCRIBE.

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Motilal Oswal has a SUBSCRIBE Recommendation with the following note,

We arrive at a price target of Rs325/share, valuing Coal India at Rs2,055b based on DCF methodology. At this price target, the stock would trade at 17.6x FY11E and 15.3x FY12E earnings. At the higher end of IPO price band of Rs245/share, the stock is valued at 11.6x PER and 3.6x P/B on FY12E basis, at a meaningful discount to utilities like NTPC, PGCIL, etc. Given the 'utility' model in 'commodity' business, coupled with the characteristics of sellers' market, we believe that CIL will largely have a linear earnings trajectory and impressive RoE / free cash generation. Reported RoE for FY10 was 44%, despite cash balance of Rs390b (1.4x capital employed). We recommend Subscribe.

COAL India - Lord of the Mines

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Gupta Equities on COAL India public issue,

CIL is the largest coal producer in India contributing 82% to the country's coal production and has proved reserves of 10,595.1 MT for future exploration and to meet the increasing demand for coal. CIL has seen production growth at a CAGR of 5% for last 5 years. The demand for coking coal is expected to grow by 9.7% and non coking coal to grow by 11.3% till FY14 which augurs well for CIL as it has a significant share in the sector, one can expect the company to perform well going forward. At the current price IPO is an attractive issue for subscription particularly for those looking at long term gains.

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Ambit's Recommendation on the IPO,

We apply a 1-year forward multiple of 8.0x considering: 1) multiple of global peers with similar margins (we adjust for the impact of Overburden Removal provisioning done by CIL); and 2) CIL’s financials are less exposed to volatility of the commodity cycle, and hence deserves a premium. This suggests a value of Rs300 (September 2011). The issue price of Rs245 offers 22% upside and we recommend SUBSCRIBE. Risks include slower-than-expected capacity expansion, and lower-than-estimated price hikes in FY12E and FY13E.

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Sharekhan's Recommendation on the IPO,

At the offer price band of Rs225-245 the stock is offered at 14.5-16x FY2010 earnings which appears attractive for a company that has strong earnings growth outlook, high return ratios (return on equity [RoE] and return on capital employed [RoCE] in excess of 30%) and a high level of cash on the books.

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KR Choksey's Views on the IPO,

The demand for coal is expected to increase at 11.2% in coming four years on the back of thermal power plants being set up in the country. CIL has a dominant position in the Indian coal industry, it caters to 53% of India’s coal requirement. CIL enjoys low cost competitive advantage as compared to its peers since most of its mines are open cast mines and have low stripping ratios. Along with strong cash generation and low cost advantage and strong financials, the company is all set to tap the growing demand for coal. On the back of strong fundamentals and healthy growth prospects recommend a SUBSCRIBE for the IPO.

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Angel Broking's Views on the IPO,

Coal India (CIL), a Navratna company, is the world’s largest coal producer. The company accounts for nearly 82% of India’s total coal production. At the
lower and upper price band, the stock will trade at 5.8x and 6.7x FY2012E EV/EBITDA, respectively. We recommend Subscribe to the issue with a DCF-based
fair value of `294.

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Edelweiss' Faisal Menon and Prasad Baji have the following recommendation,

We estimate CIL’s volumes and blended realizations to post a CAGR of 5% and 9%, respectively from FY10-12E leading to net profit to grow at a CAGR of 17% to INR 134 bn by FY12E. CIL would have net cash per share of INR 71 as on FY11 end. Our DCF valuation with 13% discount rate works out to INR 316. This implies an FY12E EV/EBITDA of 8.7x, which is a 19% discount to the average multiple of our utility coverage universe. We initiate coverage with a ‘BUY’/’SO’
recommendation.

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Capital Market has a rating of 51 on Coal India.

I am a long-term investor, want to know if one should apply in full since allotment may be 100%   

Happy Dusshera!

[Cher]

Chetan,

We would like to see Dalalstreet's recommendation on Coal India... 


Thanks,

Cher

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Reliance Securities a Anil Ambani company has the following recommendation,

FY12 P/E: 10.4–11.3x with an EPS CAGR of 18%; FY12E EV/EBITDA: 4.4-5.0x with an EBITDA CAGR of 20%. At a target EV/EBITDA of 6x, the stock should trade at ~Rs275/share. We recommend SUBSCRIBE.

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Chetan,

We would like to see Dalalstreet's recommendation on Coal India... 


Thanks,

Cher

Yes you can Invest in this IPO. Worldwide there is demand for Natural Resources and Coal India will ride on the same.

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Sunidhi Analyst Chintan Mehta has the following view,

We expect CIL’s revenue to grow by 10% CAGR during FY10—FY13E period on account of increasing dispatches (7% CAGR) and better realizations (3% CAGR). At offer price of `245, CIL is offered at EV/EBIDTA of 8.9 x, 7.0 x, and 5.4 x of its FY11E, FY12E and FY13E EBIDTA respectively. Considering its dominant position in India and worldwide we assign a forward multiple of 8x to its FY12E EBIDTA of `147bn to arrive a price target of `267