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com October 13, 2010

Coal India
IPO Fact Sheet

Issue details 431 million tonne of coal, which is around 81% of the country’s
Issue opens : October 18, 2010 total coal production. As of March 31, 2010, CIL operates
Issue closes for QIB : October 20, 2010 471 mines in 21 major coalfields across eight states in India,
Issue closes : October 21, 2010 including 163 open cast mines, 273 underground mines and
Issue size : Rs13,917 crore-Rs15,154 crore 35 mixed mines (covers both open cast and underground
(after adjusting for 5% mines). The company also operates 17 coal beneficiation
discount to retail investors facilities with an aggregate designed feedstock capacity of
and employees) 39.40 million tonne per annum.
Shares outstanding : 631.6 crore
Issue size : 63.16 crore Key positives
Employee portion : 6.31 crore To cash in on the acute shortage of coal
Net issue size : 56.84 crore
CIL is one of the largest companies in the world based on
QIB portion : At least 28.4 crore equity shares
the coal reserves of 64,786 million tonne as on April 1, 2010
HNI portion : Not less than 8.5 crore equity
shares
(including proved reserves of 52,546 million tonne, indicated
reserves of 10,298MT and inferred reserves of 1,942 million
Retail portion : Not less than 19.9 crore equity
shares tonne). The company produced 431.3 million tonne of coal
Price band : Rs225-Rs245 per share in FY2010, which is 7% higher than the FY2009 coal output
of 403.7 million tonne, and accounted for 81% of the country’s
Objects of the offer total coal production.
The objects of the offer are to carry out the divestment of CIL coal production (in million tonne)
63.16 crore equity shares by the selling shareholder and to
Particulars FY06 FY07 FY08 FY09 FY10 CAGR
achieve the benefits of listing the equity shares on the stock
Non-coking 319.23 336.64 353.3 377.19 395.13 5.5%
exchanges. Coal India Ltd (CIL) will not receive any proceeds coal production
from the offer and all proceeds shall go to the selling Coking coal 24.16 24.27 26.16 26.54 36.13 10.6%
shareholder. production
Total 343.39 360.91 379.46 403.73 431.26 5.9%
Shareholding pattern production
Source: Draft prospectus
Shareholders Pre-offer Post-offer
No. of % No. of % Coal is primarily used in three sectors, power, steel and
shares holding shares holding
(crore) (crore) cement, with the power sector alone consuming around 77%
President of India 632 100 568 90 of the non-coking coal produced in India. With these three
Public 0 0 63 10 sectors taking giant steps to expand capacities, the demand
Other 0 0 0 0 for coal is expected to grow at a compounded annual growth
Total (A+B+C) 632 100 632 100 rate (CAGR) of 11% over FY2010-12. However, the coal
production in the country is expected to grow at a much
Company background lower rate of 6% per annum over the same period and India
CIL, a state-owned company, is the largest national coal is lacking sufficient port handling capacities which will limit
mining company in India in terms of coal reserves and the import of coal. This will lead to a huge demand-supply
production. It had total coal reserve of around 64,785 million mismatch for coal in India.
tonne as on April 1, 2010. In FY2010, the company produced

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 sharekhan ipo flash Coal India

Investment plans to boost production levels The reserve price of raw coal sold pursuant to the e-Auction
CIL has undertaken several measures to ramp up production scheme is determined on the basis of the prevailing market
prices. The price of raw coal sold under the e-Auction
to meet the rapidly increasing demand from the power
scheme is significantly higher than the price of the raw
generation, steel and cement sectors. The company has
coal sold under the company’s fuel supply agreement (FSA;
identified 77 projects with an aggregate proposed capacity
wherein the price is determined in consultation with the
addition of 184.78 million tonne per annum at a proposed government). The average price of raw coal allotted through
capital expenditure of Rs11,006.5 crore. Out of the 77 the e-Auction scheme was Rs1,346.73 per tonne, Rs1,480.76
projects, 32 projects have started contributing to the per tonne and Rs1,582.80 per tonne in FY2008, FY2009
production (around 57 million tonne in FY2010) and around and FY2010 respectively.
25 projects (estimated capacity of 47.5 million tonne) are
likely to start contributing to production from FY2012. The Coal washing, technically called coal beneficiation, is a
remaining 20 projects are expected to become operational process by which the quality of raw coal is improved by
by the 12th Five-Year Plan (2013-18) period. reducing the ash content and extraneous matter that gets
The company also plans to develop an additional 20 coal extracted along with the mined coal. Beneficiated and
beneficiation facilities with an aggregate additional proposed washed non-coking coal are primarily used for power
feedstock capacity of 111.10 million tonne per annum to generation, cement, sponge iron and other industrial plants.
increase its production of beneficiated non-coking coal.
Has the wherewithal to shop for global coal mines
Scope for increase in average realisation CIL has a strong balance sheet with a debt-to-equity ratio
The average realisation is expected to improve going of only 0.1x and cash of Rs39,078 crore ($8.5 billion) in
forward due to: (1) a higher proportion of sales through FY2010. Further, its operating cashflows are also solid at
the e-auction route; and (2) the investment in coal washeries Rs13,303 crore.
(washed coal commands higher realisation and margin).
Given the huge cash and low debt-to-equity ratio, the
Under the New Distribution Policy, CIL is allowed to sell 10% company is pursuing a strategy to acquire international
of its production under the e-Auction process. The expert coalmines in order to augment its coal reserves. In line
panel set up by the Planning Commission has asked the with its strategy, the company has commenced the due
coal ministry to increase the limit of 10% to 20%. This has diligence process and is currently evaluating proposals for
been proposed to bridge the huge gap between the domestic the acquisition of coal assets in Australia, Indonesia and
and international coal prices. The proposal is yet to receive
the USA. The company has acquired prospecting licences
a positive response from the coal ministry.
and intends to enter into strategic joint ventures for the
development of two coal blocks in Mozambique.
CIL’s business portfolio
Eight operational subsidiaries with extractable coal reserves of 21,753 million tonne
Subsidiary Coalfields Location Type of mines As of 4/1/2010
Under Open Mixed Total Capacity Reserves Extractable
ground cast (million (million reserve
tonne) tonne) (million tonne)
MCL Talcher and IB Valley Orissa 9 16 0 25 115 13332 8012
WCL Wardha Valley, Kamptee, Maharashtra 45 38 2 85 47 5571 1459
Umrer Nand Bander and and Madhya
Pench-Kanhan Pradesh
BCCL Jharia, Raniganj Jharkhand 38 17 23 78 33 7714 1173
CCL Karanpura, Bokaro, Jharkhand 24 37 2 63 48 11674 3687
Ramgarh and Giridih
SECL Kobra, Central India and Madhya Pradesh 68 22 1 91 109 11787 4102
Mand Raigarh and Chhattisgarh
NEC Makum Assam 5 3 0 8 1 380 249
NCL Singrauli Madhya Pradesh 0 10 0 10 77 3482 1891
and Uttar Pradesh
ECL Rajmahal/ Deogarh Jharkhand 84 20 7 111 32 10846 1180
Total 273 163 35 471 462 64786 21753
Source: Draft prospectus

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sharekhan ipo flash Coal India

Indian coal industry 77% of the non-coking coal produced in India. With these
Current scenario—huge reserves but short on supply three sectors taking giant steps to expand capacities,
the demand for coal is expected to grow at a compounded
Coal is the dominant source of energy in India and accounts
annual growth rate (CAGR) of 11% over FY2010-12.
for 52.4% of the country’s total energy requirement. India
However, the coal production in the country is expected
has total coal reserve of 277 billion tonne and produced
to grow at a much lower rate of 6% per annum over the
around 532 million tonne of coal in FY2010.
same period and India is lacking sufficient port handling
India has 13% of world’s recoverable coal reserves capacities which will limit the import of coal. The 11th
35.0% Five-Year Plan projects the gap between the demand and
29.8%
30.0% the availability of coal in FY2012 at 83.3 million tonne.
25.0%
19.0%
Indian coal reserves are concentrated in eastern region
20.0%
90.0
13.9% 12.8%
15.0% 80.0
9.2% 70.0 6.3
10.0%
4.1% 3.8%
60.0 12.7
3.7% 3.7% 31.0

Million tonne
5.0% 50.0
4.0
0.0% 40.0 32.1
30.0
India

Ukraine
China
US

Russia

Kazakhstan

Others
Australia

30.2 5.1
S Africa

20.0 39.6 13.0 2.2 3.0

21.5 11.3 9.7 3.0
10.0 12.4 3.3
11.8 8.5 9.3 6.7
0.0

Jharkhand

Chhattisgarh

Madhya
Bengal

Pradesh

Pradesh

Others
Orissa

Andhra
West
Source: Ministry of Coal (MoC), BP Statistical Review of World Energy 2010
Accounts for only 8% of global production
50%
44%
45% Proved Indicated Inferred
40%
Source: Geological Survey of India (GSI), Government of India (GoI)
35%
30% Coal production rose at CAGR of 7% over FY2006-2010,
25% dominated by public sector
20% 18%
15%
15%
600
10% 7% 6%
4% 4% 500 48
5% 1% 1% 43
Million tonne

30 35
0% 400 26
India

Ukraine
China
US

Russia

Kazakhstan

Others
Australia

S Africa

300
450 484
200 381 400 422
Source: MoC, BP Statistical Review of World Energy 2010 100
Big coal consumers on expansion spree 0
Coal is primarily used in three sectors, power, steel and FY2006 FY2007 FY2008 FY2009 FY2010
Public Private
cement, with the power sector alone consuming around
Source: MoC
Coal demand sector-wise (FY2007-FY12) (In million tonne)
Sector 10th Five-Year Plan 11th Five-Year Plan CAGR
FY07 A FY08 A FY09 A FY10 P FY11 BE FY12 BE (%)
I) Coking coal
Steel/Coke ovens & cokeries 17.30 16.99 16.58 17.23 17.92 26.02 23
Steel (import) 17.88 22.03 21.08 23.47 32.59 42.48 35
Sub-total coking 35.18 39.02 37.66 40.70 50.51 68.50 30

II) Non-coking coal

Power utilities 307.92 332.4 362.93 371.66 442.00 473.00 13
Captive power 28.13 29.31 32.74 39.08 44.00 47.00 10
Cement 19.67 21.27 18.85 18.98 30.00 33.35 33
Steel DR 17.47 20.92 19.78 23.09 28.80 28.96 12
BRK & Others 55.51 61.37 77.07 88.82 61.00 62.43 -16
Sub-total non-coking 428.7 465.27 511.37 541.63 605.80 644.74 9
Grand total (I+II) 463.88 504.29 549.03 582.33 656.31 713.24 11
% Y-o-Y growth 8.7 8.9 6.1 12.7 8.7
Source: Draft prospectus

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 sharekhan ipo flash Coal India

Key concerns price of the non-coking coal produced by CIL is almost 60-
Infrastructure constraints 70% lower than that of its Asian peers.

In our view, India faces a problem of poor logistics and Coal bearing forest demarcating proposal to hit CIL
infrastructure facilities, and we believe that it is the major The government has recently made a proposal to demarcate
reason suppressing the coal production in India. With coal certain coal-bearing forest areas in India into two
reserves concentrated in the eastern region of the country, categories: areas where coal-mining activities will be
where the logistic facilities are inadequate, the issues have permitted and areas where coal-mining activities will not
increased for the coal industry. be permitted. A recent study by coal and environment
ministries indicates that around 48% of the total coal mining
CIL uses a combination of rail and road transportation to
area falls in the category where coal-mining activities may
deliver coal to its customers. Non-availability of adequate
not be permitted. If the government’s proposal is passed
road transportation could adversely affect the company’s
and coal-mining activities in these areas are prohibited
sales volume and thus its profitability going forward.
then it could adversely affect CIL’s coal reserves and
Delays due to regulatory affairs production, and thus its earnings outlook also. However,
given the serious shortage of coal in India, the limited port
Globally, coal mining projects take around five to six years
handling capacities for coal imports and the large number
to get commissioned. However, in India the normal timeline
of coal-based power projects coming up in India, India would
for commissioning of coal blocks is far higher at 8-12 years
require strong domestic production from CIL.
when compared to the international benchmarks. This is
mainly due to delays in obtaining the regulatory approvals Valuation and view
(environment and land clearance) at multiple stages from
CIL is a quality public sector unit that is well positioned to
various agencies.
exploit the growing demand-supply gap for coal in India
Larger reserve of India’s non-coking coal is of low grade due to its huge reserves, strong balance sheet and
initiatives taken to improve the consistency of output
The majority of non-coking coal reserves in India are of
(through investment in coal washeries). On a rough-cut
low grade and hence the price of coal is also cheap. The
basis, we expect the company to show an earnings growth
Grade-wise distribution of non-coking coal reserves of over 20% in the next three years.
70% 66%
At the offer price band of Rs225-245 the stock is offered at
60% 14.5-16x FY2010 earnings which appears attractive for a
50% company that has strong earnings growth outlook, high
return ratios (return on equity [RoE] and return on capital
40%
employed [RoCE] in excess of 30%) and a high level of cash
30%
on the books.
20% 15%
12%
10% 5%
1%
0%
A B c D E,F&G

Source: MoC

Key financials
Particulars FY2006 FY2007 FY2008 FY2009 FY2010
Net sales (Rs cr) 28702 29602 32634 38789 44615
% yoy chg - 3 10 19 15
EBITDA (Rs cr) 7423 6815 6045 2461 10263
EBIT (Rs cr) 6076 5457 4484 770 8934
PAT (Rs cr) 6114 4205 4285 4063 9829
No of shares (cr) 632 632 632 632 632
EPS (Rs) 9.7 6.7 6.8 6.4 15.6
% yoy growth - -31.2 1.9 -5.2 141.9
RoCE (%) 35.7 29.4 23.3 3.6 32.0
RoE (%) 42.9 25.9 24.9 21.4 38.0
Source: Draft prospectus

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 sharekhan ipo flash Coal India

Financials

Profit and Loss statement Rs (crore)

Particulars FY2006 FY2007 FY2008 FY2009 FY2010
Net sales 28,702 29,602 32,634 38,789 44,615
Coal issued for other purposes 2,054 1,940 1,975 2,022 2,069
Accretion in stock 484 248 244 134 667
Total income 31,240 31,790 34,853 40,944 47,351
Expenditure
Internal consumption of coal 2,014 1,848 1,951 1,992 1,972
Consumption of stores & spares 3,889 4,126 4,379 4,861 4,927
Employees' remuneration & benefits 9,788 10,098 12,635 19,742 16,656
Power & fuel 1,551 1,600 1,594 1,595 1,740
Social overhead 1,368 1,478 1,623 1,885 2,017
Repairs 650 665 710 786 848
Contractual expenses 1,975 2,093 2,633 3,340 3,732
Miscellaneous expenses 1,328 1,264 1,487 1,929 1,934
Overburden removal adjustment 1,210 1,687 1,564 2,177 3,054
Provision/Write-off 44 117 232 176 209
Total operating expenses 23,817 24,975 28,807 38,483 37,088
Operating profit 7,423 6,815 6,045 2,461 10,263
Other income 2,769 3,215 3,764 5,120 5,241
Interest 91 85 150 156 136
Finance charges/Commitment charges 28 23 19 22 19
Depreciation 1,315 1,312 1,530 1,663 1,314
Impairment 32 46 31 28 16
PBT 8,726 8,564 8,079 5,711 14,019
Prior period adjustment 28 22 111 28 -54
Profit before tax and extraordinary items 8,754 8,586 8,190 5,739 13,965
Provision for income tax 2,871 3,168 3,599 3,684 4,433
Provision for deferred tax (written back) -188 -278 -249 -103 -34
Provision for income tax for earlier year 192 -36 76 46 58
Excess provision for income tax written back (earlier period) -13 0 0 -14 -115
Fringe benefit tax 34 39 48 51 0
Profit after tax but before extraordinary items 5,857 5,693 4,716 2,075 9,622
Extraordinary items (net of tax) 34 16 527 3 0
Profit after tax (as per audited accounts) 5,892 5,709 5,243 2,079 9,622
Adjustment for re-statement: 222 -1,503 -958 1,984 207
Profit after tax (restated) 6,114 4,205 4,285 4,063 9,829
Source: Draft prospectus

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 sharekhan ipo flash Coal India

Balance sheet Rs (crore)

Particulars FY2006 FY2007 FY2008 FY2009 FY2010
Gross block 29,673 30,702 31,859 33,255 34,945
Less:
Accumulated depreciation 17,792 19,931 21,009 21,803 22,491
Provision for impairment 1,552 378 411 443 423
Other provisions 0 0 0 0 0
Net block 10,330 10,393 10,439 11,009 12,031
Add:
Capital work in progress 1,099 1,238 1,539 1,822 2,091
Surveyed off assets 23 24 29 97 120
Total fixed assets 11,451 11,654 12,007 12,928 14,242
Investments 2,245 2,026 1,718 1,505 1,282
Net interest in joint venture 0 0 0 0 0
Deferred tax assets 728 660 788 955 966
Current assets, loans and advances
Inventories 2,913 3,125 3,407 3,667 4,402
Sundry debtors 1,884 1,682 1,657 1,847 2,169
Cash and bank balances 13,427 15,929 20,961 29,695 39,078
Loans and advances 6,500 7,818 10,266 11,727 8,676
Total current assets 24,725 28,555 36,292 46,936 54,324
Total assets 39,149 42,895 50,805 62,325 70,814

Liabilities and provisions

Secured loans 248 333 225 180 467
Unsecured loans 2,071 1,811 1,659 1,968 1,620
Current liabilities & provisions 21,644 23,617 30,594 39,942 41,382
Minority interest 0 0 0 2 24
Shifting and rehabilitation fund 486 688 946 1,224 1,477
Deferred tax liability 447 233 180 0 0
Total liabilities 24,896 26,682 33,604 43,317 44,970
Net worth 14,254 16,213 17,201 19,008 25,844
Share capital 6,316 6,316 6,316 6,316 6,316
Reserves and surplus 7,937 9,897 10,884 12,692 19,529
Less: Miscellaneous expenditure (not written off) 0 0 0 0 2
Total liabilities 39,149 42,895 50,805 62,325 70,814
Source: Draft prospectus

The "views" expressed in this report are our views only and have been arrived at after analysis of the public offering details.
This is not a recommendation under our "Stock Idea" category. It may/may not be included in the Stock Idea by our analysts
at a later date.

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