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Tuesday, 26 October 2010

Coal India- Black Gold : Allotment

Dear All

The mega IPO of Coal India has been has an astounding success and Empowered Group of ministers(EGOM) priced the issue at the upper end of the price band at Rs 245 per share(Retail investors will get 5% discount on the above price). The government will rake in an unprecedented Rs 15,200 crore from the issue

The icing on the cake is that 90% of the unsubscribed employee quota will be apportioned between Qualified Institutional Buyer (QIB), retail and high net worth individual (HNI) in 50:35:15 ratio, in net effect it will aproximately add 2 crore shares to the retail portion.

Coal India IPO where the total IPO size was $3 billion and the retail bucket itself getting 2.5 times subscribed with close to $3 billion demand according to me is fantastic.

The company is expected to list on stock exchanges on November 4, a day before Diwali. The IPO, which closed on October 21, was subscribed 15.17 times, and mopped up Rs 2.35 lakh crore($54 Billion) against an issue size of Rs. 15,200 crores($3.2 Billion).

When it lists on the stock exchange it should open at a fairly good premium, CIL deserves to trade at a premium to global coal peers, given much lower volatility in earnings and a large headroom to raise prices in a supply-deficit environment.


COAL INDIA LIMITED SUBSCRIPTION STATS:

Sr.No. Category No.of shares offered/reserved No. of shares bid for No. of times of total meant for the category
1 Qualified Institutional Buyers (QIBs) 284236398 7019464125 24.70
1(a) Foreign Institutional Investors (FIIs)
4933872050
1(b) Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1807527975
1(c) Mutual Funds
266896250
1(d) Others
11167850
2 Non Institutional Investors 85270919 2166004875 25.40
2(a) Corporates
1384329500
2(b) Individuals (Other than RIIs)
764448150
2(c) Others
17227225
3 Retail Individual Investors (RIIs) 198965479 458634025 2.31
3(a) Cut Off
392048500
3(b) Price Bids
66585525
4 Employee Reservation 63163644 6174300 0.10
4(a) Cut Off
5849500
4(b) Price Bids
324800


How many shares will the retail investor be alloted per full application

Total shares reserved for Retail Individual Investors (RIIs)198965479 (A)
35% of the unsubscribed shares reserved for Employees    =  19946271  (B)
                                                                                       --------------------
            Total shares reserved for allotment to RII's (A+B)    218911750 (T)
                                                                                        --------------------


No. of shares bid in RII segment = 458634025 Total Bids(TB)
No. of shares bids at cut off price =392048500 Cutt-off Bids(CB)

Worst Case Scenario:

In this instance we calculate allotment number by taking into consideration the Total Bids received against shares reserved for RII Segment as calculated above (A+B)

Total shares reserved including the 35% of the unsubscribed employee protion = 218911750(T)
Total Bids received =458634025(TB)

Hence = T/TB=0.477
Assuming all applications were for 400 shares then:

Allotment will be 400 shares  x 0.477= 191 shares will be alloted to retail investors.

Best Case Scenario

In this instance we calculate allotment number by taking into consideration the Cutt off bids received against total shares reserved for RII Segment:

Total shares reserved including the 35% of the unsubscribed employee protion = 218911750 (T)
Cut off Bids received (CB) =392048500 (CB)

Hence = T/CB=0.558

Assuming all applications under Cutt off's were for 400 shares then =


Allotment will be 400 shares x 0.558=223 shares will be alloted to retail investors.


In as much as the price has been fixed at the upper band the chances of getting better alotment increases.

In my opinion each RII who submitted a full application for 400 shares may be alloted atleast 191 shares and  may inch upto 223 depending on the applications submitted by those investors who applied on a fixed price basis.


CIL Grey Market Premium:

Currently quoting between Rs.39-42 per share, Please note RII are allotted shares at 5% discount so RII's will be issued at Rs.232 per share.

Current Grey market premium quoting at Rs.39-42 per share and add the retail discount of Rs.12, in net effect a retail investor's share has a total premium of atleast Rs.50 per share

Thus each allottee is sitting on a profit of  Rs. 10,000/-atleast per full application on a total investment of Rs.98,000/-

For those of you who pre-sold your allotment for Rs.4,800 to Rs.5,000/- thats a loss of Rs.5,000/- per application.


Listing Strategy: 04th November 2010

In my opinion, Coal India deserves to trade at a premium to global coal peers with a price target anywhere between Rs.300 to Rs.325 on listing. The coal-major has substantial headroom to increase prices in coming years and will provide a linear earnings trajectory and impressive returns on the capital employed.

This is the first IPO in India which will have the listed company direct entry into Nifty 50 and Sensex 30 indices.
This is the first IPO for which there will be a direct entry into the derivatives (futures & options) segment


My recommendation is that if CIL lists at 275 and below then please go out there and buy (obviously subject to your own due diligence), this is a share which you can bequeath to your grand children.


Happy Investing


Prashant

DISCLAIMER


I am NOT an investing professional. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.


Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors!

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