Coal India: IPO analysis

Coal India has come up with the biggest ever IPO in the Indian Stock market history. Government, however, is being greedy these days and further offers of PowerGrid, Shipping Corp. of India, ONGC, IOC are coming. It is interesting to understand where is the money in the market for these issues. Anyway coming back to Coal India.

Summary:

As per research by CRISIL, CIL is world largest coal producer and largest reserve holder. India is world's third largest coal producer and consumer. CIL met close to 82% of coal demand in India; In India power generated from coal was 52% of total power (FY2009). Apart from power generation, coal is heavily used in cement and steel plants.


Negatives:

1. Coal India is a holding company and its results and profitability is dependent upon  its subsidiaries.
2. GOI is selling its stock. Gains from this offer will not be part of Coal India company.
3. The current state of transportation available will not help even if Coal India could increase its production. 
4. Coal India may (and probably will) face problems in land acquisitions. It also has mandate to share 26% of its profits with the affected people.
5. India is a power hungry country; still many NGOs have been working relentlessly against such power plants, and their efforts may result in Coal India's loss.Greenpeace is already on to this link.
6. Estimation of coal reserves is pretty much subjective process and could be incorrect.
7. Coal India sells its coal below international price (although coal has been deregulated since 2000)
8. Much of its assets are located in politically unstable areas.
9. Finding further coal fields has risks of not finding, not enough coal finding, and not finding a good grade coal.
10. Illegal mining.

Positives:

1. Largest coal producer and largest reserve holder. Apart from this, there is enough unmet demand in India.
2. Strong and stable financial track record.
3. Has started ERP implementation. For company of such a scale, ERP implementation will pay dividends in long term.
4. Focused on increasing resources by venturing into outside India.