Coal India gets CRISIL IPO Grade 5
Coal India Ltd, world’s largest producer of coal has strong fundamentals relative to the other listed equity securities in the country, leading ratings agency, CRISIL Research informed.
The research analyst firm has assigned CRISIL IPO Grade ‘5/5’ to the proposed initial public offer (IPO) of Coal India Ltd (Coal India).
“This grade indicates that the fundamentals of the IPO are ‘strong’ relative to the other listed equity securities in India,” the ratings agency said in a statement.
The assigned grade reflects Coal India’s dominant position in the Indian coal industry. The company holds 81% market share in coal sector and caters to 53% of the country’s energy requirement.
According to industry estimates, the demand for coal is expected to increase at an annual rate of 11.2% over the next four years on the back of increase in thermal power plants being set up in the country.
Coal India enjoys cost competitive advantage over international players since nearly 90% of its production is from open cast mines and have low stripping ratios. As a result, the notified prices of Coal India are significantly lower than imported coal prices adjusted for calorific value. The grade also takes into account the de-controlled pricing regime and Coal India’s ability to increase coal prices in the past, CRISIL Research noted.
Further, the company has been gradually increasing its mix of market-linked price sales, which has further boosted its profitability.
As of March 2010, the company has a cash and bank balance of Rs.390 bn. “We believe this, together with its strong cash generation and very low gearing, would enable the company to pursue growth opportunities globally and also comfortably fund its capital expenditure plans of Rs 84.5 bn over the next two years,” the analyst firm said.
However, ability of the management to deploy the surplus cash in productive assets would have a bearing on its return on equity. The grade also factors in a highly experienced management, credited with the successful launch of market-linked sales and turning around loss-making subsidiaries.
However, several socio-political factors limit CIL’s operating flexibility. Delays in regulatory approvals, such as forest clearance, are an industry-wide concern and also remain a challenge for the company.
Any adverse change in the regulatory regime on pricing regulation and restriction on mining area could have a material impact on our grade and remains a key monitorable.
Coal India, is reported to hit capital markets in October with one of the largest public issues in the world. Government of India-owned Coal India produces the largest resources of 64.8 bn tonnes.
In FY10, it produced 431 mn tonnes of coal, which accounted for 81% of the coal production in India.
The company owns and operates 471 coal mines, of which 163 are open cast, 273 are underground and the rest are mixed.
In 2009-10, the company reported turnover of Rs.466.7 bn and net profit of Rs.98 bn. It posted EPS of Rs.15.6 during the same period.
The research analyst firm has assigned CRISIL IPO Grade ‘5/5’ to the proposed initial public offer (IPO) of Coal India Ltd (Coal India).
“This grade indicates that the fundamentals of the IPO are ‘strong’ relative to the other listed equity securities in India,” the ratings agency said in a statement.
The assigned grade reflects Coal India’s dominant position in the Indian coal industry. The company holds 81% market share in coal sector and caters to 53% of the country’s energy requirement.
According to industry estimates, the demand for coal is expected to increase at an annual rate of 11.2% over the next four years on the back of increase in thermal power plants being set up in the country.
Coal India enjoys cost competitive advantage over international players since nearly 90% of its production is from open cast mines and have low stripping ratios. As a result, the notified prices of Coal India are significantly lower than imported coal prices adjusted for calorific value. The grade also takes into account the de-controlled pricing regime and Coal India’s ability to increase coal prices in the past, CRISIL Research noted.
Further, the company has been gradually increasing its mix of market-linked price sales, which has further boosted its profitability.
As of March 2010, the company has a cash and bank balance of Rs.390 bn. “We believe this, together with its strong cash generation and very low gearing, would enable the company to pursue growth opportunities globally and also comfortably fund its capital expenditure plans of Rs 84.5 bn over the next two years,” the analyst firm said.
However, ability of the management to deploy the surplus cash in productive assets would have a bearing on its return on equity. The grade also factors in a highly experienced management, credited with the successful launch of market-linked sales and turning around loss-making subsidiaries.
However, several socio-political factors limit CIL’s operating flexibility. Delays in regulatory approvals, such as forest clearance, are an industry-wide concern and also remain a challenge for the company.
Any adverse change in the regulatory regime on pricing regulation and restriction on mining area could have a material impact on our grade and remains a key monitorable.
Coal India, is reported to hit capital markets in October with one of the largest public issues in the world. Government of India-owned Coal India produces the largest resources of 64.8 bn tonnes.
In FY10, it produced 431 mn tonnes of coal, which accounted for 81% of the coal production in India.
The company owns and operates 471 coal mines, of which 163 are open cast, 273 are underground and the rest are mixed.
In 2009-10, the company reported turnover of Rs.466.7 bn and net profit of Rs.98 bn. It posted EPS of Rs.15.6 during the same period.
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