The Coal India offer-for-sale, the biggest one till date, on Friday, will be a good opportunity for retail investors to participate in the equity market. The reason: Since its listing in April 2010, the stock is up 57 per cent from its issue price of Rs 245. In comparison, the Sensex is up 41 per cent. The compounded annual rate of growth from its issue price is an impressive 11.41 per cent vis-a-vis the Sensex’s 8.70 per cent.
The good news also is that while the Securities and Exchange Board of India (Sebi) has mandated a minimum retail quota of 10 per cent, the Government of India has doubled the stipulated quota at 20 per cent for them or around Rs 4,800 crore of the issue size, if the green shoe option is used. The chances for getting an allotment have doubled. In addition, there is a discount of 5 per cent.
Obviously, analysts are encouraging investors to buy the stock. “Broadly, it’s a good issue. Coal India is a unique monopoly and an increase in production going forward will be rewarding to investors holding the stock for the next five to six years,” said Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services.
Added Alex Mathews, Head Research, Geojit BNP Paribas: “Since Coal India is one of the biggest companies doing extremely well, I think there will be a huge demand from retail investors. Also, given that the Sensex is 29,000 points, the investor confidence is also up substantially.”
“With improved governance and transparency, PSUs are expected to perform well in the coming months. Coal India, specifically, is a huge asset, which is currently underutilised but which has the potential for improvement in terms of efficiency and productivity,” said Vikram Kotak, managing partner, Crest Capital.
Some feel that the stock may be a tad expensive right now. “The stock is not cheap at the current market price. Retail investors should put money if the stock corrects by 5-10 per cent between now and the time of offer,” said G Chokkalingam, founder, Equinomics Research & Advisory.
At the current market price of Rs 384, the stock is trading at a trailing one year price-to-earnings multiple of 16.6x compared with its closest peers Hindustan Zinc and NMDC whose multiples stand at 8.9x and 8.3x for peers. However, the discount of 5 per cent will come in handy.