Investors can bid for Coal India (CIL) shares in the offer for sale (OFS) that is open today. Government plans to sell 5 per cent of its stake (around 31.6 crore shares) with an option to double the numbers. The minimum bid price has been set at Rs 358 - 4.5 per cent below the closing price of Rs 375.15.
At this floor price, the stock trades at 15 times its trailing 12 month earnings, in the mid-range of its three-year historical average of 14-16 times. The company’s core strengths of ample coal reserves, supply dominance, large cash reserves and robust operating margins of over 20 per cent lend support.
Also the company’s growth prospects are improving, boosted by several factors. For one, the stake sale will improve liquidity in the stock and remove the uncertainty on the pricing of the stake sale that cast a dampener on the stock for over a year. Second, the company has a monopoly over coal supply in the country; coal demand has been robust, growing at an average of 5 per cent yearly in the last five years and would likely continue to increase at the same rate.
Third, the company’s output volumes, which have not kept pace with demand, is expected to pick-up and double to one billion tonnes by 2019-20. This growth will be made possible through green-field and brown-field expansions as well as operational improvements in its underground mines.
The company’s near term prospects will improve once it receives environmental clearances for 48 projects, totalling 109 million tonnes per annum that are pending approval. CIL is also expanding in Mozambique, Africa to mine higher grade coal output; production is likely within a year.
Fourth, issues in transporting coal can be eased with the expedited construction of three railway links that will increase transportation by 200 mt in five years.
Retail interest
CIL has a generous dividend policy – paying Rs 33.3 in 2013-14, a yield of over 9 per cent – helped by the Rs 55,000 crore in cash on its books (as of March 2014). Retail investors, those whose total bids do not exceed Rs two lakh, get a 5 per cent discount on their bid price, further sweetening the deal.
Given these, it is likely that the offer will elicit good response. The retail portion of CIL’s IPO in 2010 was 2.3 times oversubscribed with 16 lakh investors applying. The Government has set aside 20 per cent of the shares – twice the SEBI mandate – for retail investors in the current OFS.
As per SEBI regulations, retail investors can make a price bid or choose to place their bid at cut-off price. The cut-off price will be determined by the company based on the bids received.
If you have a demat account, you can ask the broker to place a bid – at a given price or at cut-off. Alternatively, you can also apply through the exchange website, if you have registered already. You can check the interest levels at various prices at the exchange website. Indicative price, which is the volume weighted average price, along with subscription figures can give you an indication of demand.