Coal India-Black Gold-IPO Notes-Subscribe at Cut-off

                                  Coal India-Black Gold-IPO Notes-Subscribe at Cut-off. 

                      

•                       Price Band: Rs.225-245, Retail Investors and Employees will get 5% discount. 

India’s Energy Scenario and Coal

India is currently among the top three fastest growing economies of the world. As a corollary, India's energy needs too are fast expanding with its increased industrialisation and capacity addition in power generation. This is where 'coal' steps in, as the most dominant energy source in India's energy scenario.

Coal India Limited at a glance

Coal India Limited (CIL) - a Schedule 'A' 'Navratna' Public Sector Undertaking under Ministry of Coal, Government of India, has its Headquarters in Kolkata, West Bengal. CIL produces non-coking coal and coking coal of various grades for diverse applications.

As of March 31, 2010, CIL operates 471 mines in 21 major coalfields across eight states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (includes both open cast and underground mines). 

CIL also operates 17 coal beneficiation facilities with an aggregate designed feedstock capacity of 39.40 million tons per annum. 

Coal India's major consumers are the power and steel sectors. Others include cement, fertiliser, brick kilns etc.

Reasons to apply in the IPO:

·         CIL sits on reserves which is the largest among all its peers in the world by many times.

·         CIL’s coal production has steadily grown and today is the largest coal mining company in the world.

·         The aggregate production last year was 431 million tonne which is slightly higher than the aggregate production of the second and third largest coal mining companies in the world.

·         At USD 12 per tonne it is one of the lowest cost coal producing company in the world.

·         CIL has one of the highest total factor productivity which drives down the cost to it being one of the lowest in the world

·         Demand of coal in India is outpacing availability and supplies, particularly because of the power generation capacity addition programme that has picked up in the 11th Plan period. The coal demand is expected to increase at somewhere around 9% to 10% per annum.

·         CIL is financially profitable, debt free, very large, financially sound company and this has happened by pursuing a strategy which is aimed at physical volume growth.

·         So all in all CIL has a cost advantage, size advantage, reserve advantage and most importantly has a insatiable demand advantage.

·         CIL registered a turnover of Rs 47,000 crore (Rs 41,000 crore) last fiscal and a net profit of Rs 9,600 crore (Rs 2,079 crore).

·         It has a cash surplus of Rs 38,000 crore and earmarked $1.5billion for overseas acquisitions.

·         The current coal that CIL sells in the market is at deep discount(approx. 40-50%) to prices prevailing globally. 

·         One reason for the discounted price is CIL sell’s coal unwashed and the unwashed coal has an inconsistency in quality. The corollary to that is if CIL removes that inconsistency by getting into washing steadily, CIL should be able to achieve a price convergence. That is actually the margin growth story which CIL has.

·         CIL intends to go in for washing of the thermal coal it produces in a big way. CIL are setting up as many as 20 washeries with a total capacity of 111 million tonne to wash the coal that is being produced from thier existing mines.

·         Price of washed coal will be almost 50% more than what CIL realises from sale of different grades of unwashed coal under a regulated pricing regime.

·         Out of its total production of over 430 million tonnes of coal, CIL currently washes a meagre 13 million tonne(mt). As per management this is expected to increase to 300 mt or 55% of total coal produced by CIL by 2016-17.

·         If that washing takes place, then CIL can have a 45% to 50% jump in the prices in comparision to what it realises currently.

The world's largest coal company, is the best play on India's rising coal deficit, and thus is an attractive bet at the price band of Rs 225 to 245 a share. Retail investors Subscribe at cut-off price for it should trade at atleast 30% premium to its offer price.

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.

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