Rating agency, CARE, today said it has assigned a 'CARE IPO Grade 5' grading to the proposed initial public offer (IPO) of Coal India (CIL), indicating the "strong fundamentals" of the IPO.
The company plans to come out with its IPO of 631,636,440 equity shares of face value of Rs 10 each.
CARE pointed out the assigned grading reflects CIL's dominance in the Indian coal industry. CIL contributes to around 82 per cent of coal production in India.
The balance 18 per cent is produced mainly for captive consumption by manufacturing/power companies. Thus practically, CIL holds the monopoly in traded coal available domestically, a press release issued here stated.
Besides, CIL's strong financial position with cash balances of Rs 39,077 crore with a comfortable gearing ratio give it immense financial flexibility to fund its on-going and planned expansion projects.
Moreover, CIL is one of the lowest-cost producers giving it an pricing edge over imported coal. The grading also factors experienced management and impressive track record of operations, CARE said in its release.
CARE Research foresees demand for the domestic coal industry will be mainly driven by the power generation companies.
Increasing domestic steel and cement capacities are also likely to further support the domestic coal demand. Hence the offtake-related risk for CIL are negligible, the release said.
However, CIL's operations are affected to some extent by socio-environmental concerns. Changes in pricing regulations, delays in obtaining clearances from the forest department and delay in receipt of regulatory approvals continue to pose a threat to the company's operations.
CIL is a 100 per cent Government of India (GoI)-owned company having obtained 'Navratna' status in October 2008.
The company is responsible for the entire coal mining sector and it operates alongwith a number of subsidiaries. The company has an experienced senior management team with many of the members serving the company or its subsidiaries for more than 30 years.
The company has a sound corporate governance system, in place. The GoI is now divesting 10 per cent of its equity through the public issue of shares.
CIL reported a PAT of Rs 9,829-crore on total income of Rs 52,592-crore in FY10. It is practically a debt-free company and has healthy profit margins. However, the prices of coal, being a commodity, are volatile in nature.
Hence the profit margins too are volatile for the company, CARE said.
On account of low operating cost and strong reserves built by the company, the financial soundness is high. Further the shift of the company to a more market-linked pricing mechanism is expected to improve its profitability, CARE added.
