Analysts bullish on CIL issue; India's largest IPO opens Monday

Coal India Ltd's Rs 15,000 crore mega issue, which opens tomorrow for public subscription, has garnered a bullish endorsement from most of the market experts who believe it would be the star attraction of this week for all, including retail investors.

"This week the main attraction for retail investors would be the primary market with the mega IPO of Coal India slated to open tomorrow," Delhi-based SMC Global Securities Research Head of Retail Saurabh Jain said.

CIL's initial public offering, priced in the range of Rs 225 to Rs 245 per share, is the biggest issue in the Corporate India's history so far.

The offering opens tomorrow and closes on October 21. For qualified institutional buyers, which include FIIs, insurance firms and mutual funds, the IPO will close on October 20.

Analysts said the issue would be important not only for primary markets but also to secondary market participants who will be watching it closely. In fact, such was the momentum to stock up cash for CIL issue that in just last two trading sessions the BSE benchmark Sensex sank by a whopping over 500 points.

Besides, there will be some short-term pressure in money market, as experts believe there could be a total liquidity impact of roughly about Rs 1.5 lakh crore during this IPO.

"The liquidity tightness during a large IPO occurs as a result of fact that many bids are financed through borrowing. This leverage shows up as a temporary expansion in the credit during the IPO period," Axis Mutual Fund said in a note.
    
"The larger the share offer, the larger is the impact on credit and money markets. Thus large IPOs are associated with tight liquidity and rising money market rates," it said.
    
The CIL IPO has seen a broad endorsement from almost all the big as well as small investment banking firms. The Centre, which will divest its 10 per cent stake through the offering, is also bullish on the issue that will help the government to fulfill Rs 40,000 crore divestment target this fiscal
    
"I expect Coal India IPO to do very well. There should be huge response from retail as well as institutional investors," Disinvestment Secretary Sumit Bose said last week.
    
The world's largest coal producer is expected to commence trading on the domestic bourses by November 4 and SMC Global Securities Strategist Jagannadham Thunuguntla believe that it will make a decent debut on the bourses.
    
Brokerage house CLSA said, "CIL deserves to trade at a premium to global coal peers given much lower volatility of earnings and large headroom to raise prices in a supply- -deficit environment."
    
CIL is one of the largest companies in the world based on the coal reserves of 64,786 million tonnes as on April 2010.
    
"Going by the significant asset size, quality and life of the reserves and the dominance in domestic market, we believe CIL has very good prospects in long term," Elara Securities analyst Ravindra Deshpande said.

According to India Infoline Ltd's Head of Research Amar Ambani, with a possible appreciation to USD 50 billion market capitalisation over time, the company will add to the quality of stock available on Indian bourses.
    
Lower earnings' volatility, large undeveloped resource base and the potential to improve realisations warrant a premium to global peers.
    
At the upper end of price range, Coal India public issue is valued worth Rs 15,475 crore and at the lower end it would fetch about Rs 14,211.81 crore.
    
Anil Ambani Group company Reliance Power, which raised Rs 11,500 crore through its mega IPO in January 2008, is India's biggest public issue till date.
    
Citigroup Global Markets India, Deutsche Equities India, DSP Merrill Lynch, Eanm Securities, Kotak Mahindra Capital and Morgan Stanley India are book running lead manager to the CIL IPO.