Coal INDIA IPO

Coal India, the only unlisted navaratna public sector company has issued its IPO. Coal India is the largest coal mining company in the world in terms of reserve-base and annual production.This is by far the largest IPO in India (Rs 15,100 crore). Coal India is selling more than 631.6 million shares in its IPO.After the initial public offering or IPO, the government’s stake would come down to 90%.Coal India is a holding company for 11 subsidiaries which are engaged in the development and operation of coal mines as well as exploration and design, making it an integrated coal mining company.
Coal India is a near monopoly with 82 per cent share of India's total coal production. Its fundamentals are strong, given the widening demand-supply gap for coal and the company's improving operating metrics. High return on equity (38 per cent for 2009-10), despite significant cash balances, too bolster prospects.
Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers on the offer.
The timing of IPO is perfect and it is bound to attract the foreign institutional investors, leading to more dollar inflow in the economy and hence strengthening the rupee further.
The stock is a good long-term bet with steady cash flows and limited risk to profitability. It may also turn out to be a high dividend paying stock, with huge cash reserves, minimal debt and limited cash requirement for its expansion plans for the next few years.

Future Prospect of Coal India
As global economy is recovering from the meltdown , the energy sector is going to boom in future. Presently according to coal ministry the gap between domestic demand and supply is around 67 million tonnes. So as far as demand side is considered ..it is win win situation for coal India. According to analyst demand is bound to grow at double digit rate keeping in mind government ambitious project like rural electrification and the increasing industrial demand.
Coal India is bound to go for expansion plans to fill the growing gap between demand and supply. Coal prices are also increasing as energy demand is growing.
The company has ambitious plans to go for acquisition of mines in foreign countries such as Mozambique, Australia and Indonesia.The proportion of expensive under-ground mines has fallen from 13.3 per cent in 2005-06 to 10 per cent as of March 2010.The impact of this on the cost structure is quite high as the current cost of mining per tonne from open-cast mines is at Rs 520 per tonne compared to Rs 2,145 per tonne in under-ground mines.Mechanised open cast mining trims employee costs for the company; the employee base is already down 3.7 per cent over the last three years and a net reduction of 11,000 employees is expected this year; from the current base of 4 lakh.CIL also plans to add 111 million tonnes of coal washeries which would improve the beneficiated coal output, which has higher calorific value.The average price realised for beneficiated coal (Rs 2134/tonne in FY-2010) is almost double the average price for the entire output, with only marginal addition to costs for washing. Currently the high grade coal is sold at import parity price unlike cost plus in case of low-grade coal.The proportion of coal sold through e-auctions is also expected to go up to 20 per cent from the current 13 per cent, owing to the demand-supply gap.While the existing fuel supply agreements (FSAs) with power projects stipulate that Coal India meet 90 per cent of its commitment or else pay a penalty to the clients, the commitment is lower at 60 per cent for non power sectors.New power FSAs too have a 50 per cent commitment. This allows room for Coal India to sell larger quantities through e-auction.
Risks associated :Investors have to bear in mind that the coal mining business is fraught with risks, apart from requiring long gestation periods. Execution delays may crop up owing to regulatory, legal and environmental hurdles, land acquisition delays, political risks and social disturbances. Geographical concentration of resources may impose logistical problems. ECL and BCCL, wholly owned subsidiaries, despite turning profitable recently have negative net worth of Rs 6015 crore and Rs 5400 crore respectively. These companies' contributed 36.4 per cent to the overall employee costs but only 13.4 per cent to the revenues of the parent.The new MMDR Bill may require Coal India to set aside 26 per cent of the profits for resettlement and rehabilitation activities of project affected persons. However, given the company's monopoly status and pricing power, the additional costs can be passed on to consumers.