Coal India set to make history with Rs 15,200-cr IPO

Coal India’s initial public offering (IPO), the nation’s biggest and priced at a discount to global peers, may attract investors and set the stage for it to become a global industry benchmark, akin to Brazil’s Vale in iron ore. The government said investors can bid for Coal India (CIL) shares in the Rs 225-245 price band that will help it raise as much as Rs 15,200 crore, surpassing the Rs 11,600-crore record set by Reliance Power in 2008. CIL staff and retail investors will get a 5% discount to the final price. 
Ten per cent of the company, or 63.16 crore shares are on sale, which if priced at the top end, could make it the seventh most-valuable firm in the country with a market capitalisation of $34 billion, behind state-run utility NTPC . 
“Compared to global peers, the pricing of CIL issue is very competitive,’’ CIL chairman Partha S Bhattacharyya told ET NOW. “It will offer high gains to investors after getting listed.” Analysts believe that the pricing leaves a lot on the table for investors as in past share sales by state-run companies such as Maruti Suzuki and NTPC. 
“Coal India deserves to trade at a premium to global coal peers given much lower volatility of earnings and a large headroom to raise prices in a supply-deficit environment,’’ say Abhijeet Naik and Abhishek Tyagi, analysts at brokerage CLSA. Its one-year forward value is `309-324 apiece, they say, forecasting 32% gains. 
At the top end of the band, CIL would be trading at 12 times the forward-year earnings forecast, compared with 14.9 times for Australia’s Gloucester Coal and 13.7 times for China’s Shenhua Energy. If Coal India raises prices to global parity, it could boost earnings per share by 323% to Rs 84.2, potentially giving a market value of $143 billion, closer to Vale, the world’s biggest iron ore exporter that was privatised by the Brazil government in 1997. 
The share sale would be investors’ vote on the Manmohan Singh government’s economic policies. The Centre plans to raise Rs 40,000 crore this year from sale of shares in state-run companies, of which about 5% has been achieved so far. Global investors have poured more than $22 billion in the Indian stock market, making it one of the best performers in the region as economic growth sustains at more than 8%. Ten per cent of the total offer is reserved for Coal India employees, 25% for retail investors and 15% for high net worth individuals. The issue will be open between October 18 and 21 and will begin trading on November 4. 
Coal India, with an output of 431 million tonnes a year, would be the world’s biggest listed coal producer. Its coal reserves are also the largest in the world with 10.6 billion tonnes compared with Peabody’s 9.3 billion tonnes and China’s Shenhua’s 7.4 billion tonnes. The capacity additions in the cement and power sectors provide opportunities for Coal India to expand mining and boost earnings per share. The possibility of shortage of the fuel could also lead to higher prices.