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Coal India IPO analysisBusiness OverviewThe company was established in 1973 and is wholly owned by the GoI.8 wholly-owned Subsidiaries in India. CMPDIL, carries out exploration activities for all the subsidiaries and provides technical and consultancy services for companys operations as well as to third-party clients for coal exploration, mining, processing and related activities. The company also has a wholly-owned subsidiary in Mozambique, Coal India Africana Limitada ("CIAL"), The company is the largest coal producing company in the world based on raw coal production of 431.26 MT during FY10. The company is also the largest coal reserve holder in the world. The company has 471 mines in 21 major coalfields across 8 states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (which include both open cast and underground mines). The company produces non-coking coal and coking coal of various grades for diverse applications. At present, the company has 17 coal beneficiation facilities with an aggregate capacity of 39.40 MTPA.

Ipo Process

IPO Timeline

The Offer

Offer :631,636,440 Equity Shares.

Employee Reservation Portion :63,163,644 Equity Shares

QIB Portion: At least 284,236,398 Equity Shares .

Non-Institutional Portion: 85,270,919 minimum

Retail Portion: 198,965,479 minimum

Pre and post-Offer Equity SharesEquity Shares outstanding prior to the Offer: 6,316,364,400 Equity SharesEquity Shares outstanding post the Offer: 6,316,364,400 Equity Shares

Issue HighlightsSector Coal MiningIssue Opens 18 Oct 2010Issue Closes 21 Oct 2010Face value Rs 10Price Band NABid Size NA Offer structureEligible Employees QIBsNon-InstitutionalBiddersRetail IndividualBidders Number ofEquity Shares* 63,163,644 284,236,39885,270,919198,965,479% of Offer size1%15%50%35%Basis in case of oversubscriptionProportionateAmount unsubscribedProportionateProportionateMinimum BidNot specifiedAmt exceeds INR 1LAmt exceeds INR 1LNot specified

Maximum BidAnt does not exceed INR 1Lnot more than Net offernot more than Net offerAnt does not exceed INR 1LTrading lot1 equity share1 equity share1 equity share1 equity shareWho can ApplyEligible Employees Public financialinstitutionsNRI, Resident Indian, HUF, bodies registered with SEBIResident Indian and NRI(Representative)Basis For the Offer Structure-Qualitative Factors The largest coal producer and one of the largest reserve holders in the world Well positioned to capitalize on the high demand for coal in India Track record of increasing productivity and cost efficient operationsRobust financial position with a strong track record of financial performance Strong capabilities for exploration, mine planning, research and developmentExperienced senior management team and large pool of technically skilled employees Quantitative FactorsEarning Per ShareAs per standalone numbers the eps was

The eps for consolidated statement was

Quantitative FactorsReturn on NetworthThe return on networth according to unconsolidated statements was

The return on networth according to consolidated statements was

Quantitative FactorsMinimum Increase on required net worth required to maintain offer eps for the year ending MARCH 31, 2010:There will be no change in the net worth post-Offer as the Offer is by way of offer for sale by the selling Shareholder. Net Asset Value Per Equity Share As of March 31, 2010 (Consolidated) : Rs. 40.92 As of March 31, 2010 (Standalone) : Rs. 24.67 Offer Price Rs 225-245 As of March 31, 2010 (Consolidated) after the Offer1 : Rs. 40.92 As of March 31, 2010 (Standalone) after the Offer1: Rs. 24.67 Investment RationaleLargest Producer and reserve holder82% market shareproven resources of 52,545mn tonnes Met 42% of Indias primary commercial energy requirements. 45 expansion projects in various stages of planning and development

Increase in Coal Price and expected increase in salesSales likely to grow at a stronger CAGR of 12% over FY11-FY13Expected increase in raw coal prices was 6% during FY11-FY13Strong Margin OutlookMargins likely to improve from 26% to 27-30%

Reduction in employee cost :Shedding of excess manpower has helped lower employee costs

Focus on coal beneficiation:-CIL currently has 17 coal beneficiation facilities with a total capacity of 39.4mt. The management expects to add 20 new facilities in the 12th plan, raising its capacity to 111mt at a total expenditure of Rs 23bn. Further, the company intends to equip all new open-cast mining projects with coal production capacities greater than 2.5mtpa (not linked to pithead customers) with dedicated coal beneficiation facilities.

Investment RationaleTurnaround in key subsidiariesCIL has 11 direct and indirect subsidiaries of which 9 are associated with coal production.ECL and BCCL have turned around at the PAT level in FY10 ECL and BCCL together accounted for 13.5% of CILs total production in FY10. Eyeing overseas acquisitions1) Acquired prospecting licences for two coal blocks in Mozambique in 2009 with plans to enter into strategic JVs for development of the same over a period of five years (CIAL set up to carry on mining activities). Begun scouting for strategic partnerships for the acquisition of coal assets in Australia, the US, and Indonesia with a sum of Rs 60bn earmarked for the same. Formed a JV called ICVL (international coal venture private ltd) (28.7% stake) with SAIL, NTPC, NMDC and RINL (Rashtriya ISpat Nigam ltd) for acquiring coal assets outside India.Investment RationaleStrong balance sheet Net worth of Rs 258bn Net cash balance of Rs 369bn Capex of less than Rs 20bn per annum Outlined expenditure of Rs 36bn and Rs 46bn for FY11 and FY12

Key RisksInability to exploit existing reserves and acquire additional reservesHurdles to land acquisition Inadequate transportation facilities Regulatory risk