Coal India OFS: Attractively priced, says Angel Broking

Post issue of Coal India OFS, the overhang of the share sale on the price will be gone. Hence, we recommend investors to apply for CIL shares in the OFS, says Angel Broking.

January 30, 2015 / 07:55 PM IST

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Angel Broking's report on Coal India OFS

The coal ministry is making all efforts to resolve issues related to various mining projects. For the first time, the government will be drawing mine-wise plans to help CIL achieve production targets. The government is also showing strong signs of acting swiftly on important reforms, such as land acquisition. Although, we do not expect CIL to achieve its production growth target of 12.2% (CAGR) over FY2014-20, with such support from the government, we expect production to grow at a CAGR of ~8% over FY2014-20, much higher than its historical CAGR of just 2.8% over FY2009-14.

CIL’s net realisation is significantly lower than the landed price of imported coal, providing enough cushion against any decline in international coal prices. The gap also provides ample scope for CIL to pass on any cost escalations. The increasing share of washed coal will also help improve realisations. Further, technological and infrastructural enhancements, coupled with operating efficiencies from rising production will help to keep production costs low.

Outlook and valuation: "At the offer-for-sale (OFS) price of Rs 358, the stock is available at ~11.4x the consensus FY2017E EPS of Rs 31.4. Retail shareholders will get an additional discount of 5%, implying an OFS price of Rs 340. At the OFS price for retail bidders, the stock is available at a P/E ratio of 10.8x consensus FY2017E EPS, which is attractive. We also believe, post issue, the overhang of the share sale on the price will be gone. Hence, we recommend investors to apply for CIL shares in the OFS", says Angel Broking research report.

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