Coal India dips over 3% as offer for sale opens

Coal India has slipped over 3% in trade in opening moves to Rs 362 levels on tne Bombay Stock Exchange (BSE), after the government’s offer for sale (OFS) opened for subscription today.

The floor price — the base price at which it intends to sell its 10% stake in Coal India — has been set at Rs 358 a share, translating into a 4.5% discount to Thursday’s closing price. And retail investors will be issued shares at a 5% discount to the price discovered in the OFS mechanism.

The share sale, if fully subscribed, will help the government mop up Rs 22,385 crore, including a greenshoe option, making it the largest-ever equity offering in the Indian market. It will also help the government achieve over half of the disinvestment target of Rs 43,425 crore for the current financial year. To encourage retail participation, the government has doubled the quota for retail investors to 20% from the 10% mandated by SEBI.



The stock has underperformed the benchmark indices over the last one year due to the overhang of government's share sale, disappointment on volume growth, government's directive to reduce e-auction sales and inability to pass on the increase in costs, analysts say. However, they optimistic on the road ahead for the company and suggest that investors can use the OFS opportunity to buy the stock from a long – term perspective.

“We believe most of the negatives are already factored in the current price or have turned positive for the company and estimate earnings CAGR (compounded annual growth rate) of 13.7% over the period FY14-17 on the back of higher volumes and higher margins. At the OFS floor price of Rs 358, the stock is available at 6.2x FY17 EV/EBIDTA, lower than its average of 7.3x,” said Amar Ambani, head of research at IIFL

“Coal India would be a major beneficiary of the new government's focus on fuel security. In addition to the upside risks to our estimate, if government manages to achieve its goals in the near term, the company would witness a re-rating. We recommend a BUY on the stock with a price target of Rs 432,” he adds.