Coal India sale offers a good opportunity for retail investors

The stock has gained 57% since listing in April 2010, more than the Sensex's 41% rise during the period

Coal India’s offer for sale (OFS) on Friday, the biggest so far, will be a good opportunity for retail investors to participate in the equity market. The reason: Since the company was listed in November 2010, the stock has risen 57 per cent from its issue price of Rs 245. By comparison, the Sensex has risen 41 per cent during the period.

The compound annual growth rate from its issue price is an impressive 11.4 per cent, against the Sensex’s 8.7 per cent.

Also, while the Securities and Exchange Board of India has mandated a minimum retail quota of 10 per cent, the central government has doubled the stipulated quota for them to 20 per cent, or about Rs 4,800 crore, if a greenshoe option (through which investors can buy additional shares in the offering) is used. Additionally, there is a discount of five per cent.
 

GOING ABOUT IT

• Investors can use online trading accounts to place bids
• Contact the broker if you don’t have an online account
• Deposit the amount upfront with the broker
• You can bid at cut-off price and be assured of allotment
• Shares will be allotted on a T+2 basis compared with 10-12 days for an follow-on public offer

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 will be rewarding to investors holding the stock for the next five to six years,” said Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services.

Alex Mathews, head of research, Geojit BNP Paribas, said: “Since Coal India is one of the biggest companies doing extremely well, I think there will be huge demand from retail investors. Also, given the Sensex is at 29,000 points, investor confidence has risen substantially.”

“With improved governance and transparency, PSUs (public sector undertakings) are expected to perform well in the coming months. Coal India, specifically, is a huge asset that is currently underutilised but has the potential to improve in terms of efficiency and productivity,” said Vikram Kotak, managing partner, Crest Capital.

Some, however, feel the stock might be a tad expensive. “At the current market price, the stock isn’t cheap. Retail investors should put money if the stock corrects 5-10 per cent between now and the time of the offer,” said G Chokkalingam, founder, Equinomics Research & Advisory.

At Rs 384, the stock is currently trading at a trailing one-year price-to-earnings multiple of 16.6. For its peers Hindustan Zinc and NMDC, the multiples stand at 8.9 and 8.3. However, the discount of 5 per cent will come in handy.

In an earlier version of this article, it was wrongly mentioned that Coal India was listed in April 2010. The company was listed in November 2010. We have corrected the mistake, and we regret the error.