Coal India IPO: CLSA’s 1-year forward value for CIL is Rs309-Rs324

In a report to its institutional clients, broking firm CLSA says Coal India deserves a premium over its global peers and believes that the 1-year forward value for CIL is Rs309-Rs324/share against the IPO price band of Rs225-Rs245/share

Offer size: 631.6 million shares
Total number of shares: 6,316 million
Price band: Rs225-Rs245/share
Pre-issue shareholding: 100% GoI
Post-issue shareholding: 90% GoI, 10% public
Issue opens: 18 October 2010
Issue closes: 21 October 2010

CLSA estimates CIL's EPS rising at 15% CAGR over FY10-13. It says in its report on the stock, "CIL has substantial headroom to increase prices in coming years to offset cost increases and will offer significantly lower earnings volatility than global coal companies. We believe that CIL will trade at a premium to global coal peers (trading at ~12x P/E) and in an optimistic scenario, could trade closer to utility company multiples (trading at ~18x P/E). We see a one-year forward value of Rs309-324/share for CIL (market cap $43 billion-$45billion & implying 15.5-16.3x FY12 P/E) based on NPV and multiples-based valuations."

It says its key concerns about the stock would be delays in land acquisition and environment & forest clearances, a rise in costs as new and more difficult mines come on stream, and policy changes by the government in times of widening fiscal deficit that could hurt the company (CIL has cash reserves of $9 billion).

CIL has 10.6 billion tonnes of proven coal reserves (as per Joint Ore Reserves Committee standards) and produced 431.3 million tonnes (MT) of coal in FY10, making it the world's largest on both production and reserves. It is possible that its reserve size could be declared higher once mining studies are conducted on the rest of its resources. CIL accounts for 82% of India's coal output through its seven 100% subsidiaries and 90% of its output is from low-cost open-cast mines, 92% of output is thermal coal and 80% of coal sales are to the power sector. CIL sells its coal for an average price of $25/tonne with cash costs at $17/tonne and cash EBITDA at $7/tonne.

Coal India has 473 operational mines of which 273 are underground, 163 are open cast, 35 are mixed, and 279 are loss-making. Most of CIL's coal has low calorific value with almost 50% Grade F and 24% Grade E coal. E-auctions have helped CIL and it will sell nearly 10% of its production through this route.

CIL has 3,94,041 employees of which 3,40,300 are workmen; 38,773 are supervisors, and 14,968 are executives. Employee expense is its largest expense (47% of total). Its employee productivity is one of the lowest among its global peers.

CLSA believes the company is well-placed to benefit from India's rising coal demand from the power sector. It has decent expansion plans - it is targeting to increase production to 486.5MT by FY12 at 6% CAGR; 25 of its projects are already underway to add 47.5MT of capacity by FY12 and another 20 projects will add 33.3MT of capacity over FY13-17.

However, its biggest beta will probably come from improved realisations. CIL sells coal at a grade-adjusted discount of 57% to global prices. It has hiked its prices only four times since January 2000, after coal prices were deregulated.
However, frequency of hikes has increased in recent years, says CLSA and it expects more frequent price hikes in the future. However, there won't be any "quick convergence with global prices given the large economic ramifications of the same," points out the report. Rising proportion of higher-priced beneficiation coal will result in overall ASPs growing faster than headline prices as well as costs, resulting in margin expansion.



(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).



k a prasanna

7 years ago

It may list around Rs 310-325. Why wait for one year.

Killing education, by degrees: MBA seats are vacant, so the authorities do away with the mandatory written test

More than 7,000 management course seats are lying vacant for the current academic year, across Maharashtra. The state has decided to scrap the CET to fill up these seats. The biggest beneficiaries will be those institutes which prefer donations over talent for admission

This year, more than 7,000 MBA and MMS seats are lying vacant across Maharashtra. The Directorate of Education (DTE), in its circular issued on 16 September, has given permission to colleges, which are approved by the AICTE (All India Council for Technical Education), to fill up the vacant seats even for students who did not appear for the Common Entrance Test (CET).

The circular says that the institutes should give first preference to students who have cleared the CET. But if seats remain vacant even after the admission of students who have cleared the CET, institutes can fill up this deficit with students from any stream (arts, science or commerce) depending on their final graduation scores.

So in a stroke the authorities have decided that CET is not compulsory any more.

"This is complete injustice for those students who had passed the written test but could not clear the group discussion or the final interview," a senior officer from DTE who wished to remain unidentified told Moneylife.

"Even I was surprised when I came across this circular. Everything happened in a short time and now everything has been messed up," admitted the officer.

"It shows how much our education system and politicians are corrupt. Now with this new circular, admissions will not be given on a merit basis but on donations," a professor, who teaches at the University of Pune, told Moneylife, preferring anonymity. "These kinds of actions not only fuel corruption but also spoil the future of our youth," added the professor.

Justifying the government's step, Rajesh Ankushrao Tope, minister of higher & technical education, has told the media that the government wants "more and more students" to pursue professional courses like MBA to meet industry demand.

But what is the true picture? "What output can we expect from these students when they are not technically qualified for the course? They don't even have basic knowledge about the industry," said the professor.

By the looks of it, it appears that this move could be politically motivated - a number of higher institutes are controlled by politicians.

"There was no adequate preparation from the DTE and the government. Anyhow, this circular will help those institutes which prefer donations rather then talent," added the DTE officer.

There is also a glut in the number of MBA seats available. There are about 290 colleges, including departments attached to various universities across the state, which have been offering the MBA course this year. There are about 27,000 seats for the taking. 

"Even the government knew that many new colleges have been permitted to start the MBA course and existing colleges are increasing their intake capacity by almost 50% to 100% over the past two to three years. (But) no concrete steps were taken to avoid this chaos," added the officer.

There is also a question over the ministry of education's evaluation system before a college is allowed to start an MBA course or increase its intake capacity. "Nowadays it's easy to get AICTE approval to start courses and it's (even) easier for politician-owned colleges," said the professor.

The game starts right from the luring of students with false advertisements. Fancy and thick brochures and impressive websites, which contain colourful photos of buildings, groups of foreign and Indian students with high-tech laptops, long lists of alumni and attractive job offers by MNCs in the name of placements are just a few of the tactics that are used.
A reputed college in Pune, which claims itself as one of the best management colleges in India, shows on its website that for the last year, 127 recruiters had visited the campus for placement. It claims that the average annual remuneration package was Rs9.27 lakh, the highest domestic package and the highest international package were Rs16.6 lakh and Rs24 lakh respectively.

When Moneylife contacted the placement coordinator and asked detailed information about this college's claims, the coordinator refused to comment and said that he was not allowed to provide such information. According to him, he could give out these details only with the dean's permission.

Until the time of writing this story, no information has come in from this college.

"There is a big question over institutes which are situated in smaller cities," said a lecturer from Dr Babasaheb Ambedkar Marathawada University at Aurangabad. "Due to strong financial backing, institute owners set up buildings. But qualified faculty, research scope and market exposure are lacking," added the lecturer. Many institutes in semi-urban cities in Maharashtra like Nashik, Aurangabad and Kolhapur are facing a massive shortage of skilled teachers and research facilities.

"I was really horrified when I came to know that in many institutions (including those offering MBA courses) students are taught by alumni who have just passed the course. What will be the future of students in such institutes?" asked the professor from the University of Pune.


ONGC fuel subsidy bill up 15% in Q2

Mumbai: State-owned exploration and production (E&P) major Oil and Natural Gas Corporation's (ONGC) fuel subsidy bill will increase by nearly 15% to Rs3,019 crore in the second quarter this fiscal, reports PTI.

PSU fuel retailers Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) together lost about Rs11,295 crore in revenues on selling diesel, domestic LPG and kerosene below cost of production in the July-September quarter, an official said here.

"Of this under recovery, upstream companies like ONGC, Oil India (OIL) and GAIL India will bear one-third," official added.

As per this subsidy sharing formula, ONGC will chip in with Rs3,019 crore by way of discount on crude oil it sells to IOC, BPCL and HPCL.

The subsidy outgo of ONGC will be Rs2,630 crore higher than in the second quarter of last fiscal.

The official said OIL will pay Rs399 crore in subsidy during Q2 of this fiscal and GAIL Rs346 crore.

Of the Rs3,765 crore upstream subsidy contribution, IOC will get Rs2,135 crore, HPCL Rs808 crore and BPCL Rs821 crore.

While, petrol price was freed from government control in June, state oil firms continue to sell diesel, domestic LPG and kerosene at govt dictated price which is substantially lower than cost of production.

IOC, BPCL and HPCL currently lose Rs2.01 per litre on diesel, Rs15.52 per litre on kerosene and Rs188.47 per cylinder on LPG.




7 years ago

After the LPG (Liberalisation, privatisation and globalisation), almost all the sectors were opened for competition and private partnerships. Though there is privatisation, the market is still not open. Since these Organisations are GoI undertakings, they could afford this situation. Govt will subsidise the LPG and Domestic kerosene, Upstream Oil companies make good for the fuel losses. But how long... If the Govt is bold enough there should be a formula for the issue.

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