Are experts, brokerages bullish on Coal India IPO?

India's largest coal producing company Coal India's (CIL) initial public offer (IPO) is set to open for subscription on Monday, October 18, 2010. The company aims to raise more than Rs 15,000 crore through the IPO, which is the largest amount IPO in Indian history (previously Reliance Power was the biggest IPO, which raised more than Rs 11,000 crore via IPO).

This IPO is a part of the government's divestment programme and the entire amount will go to government, which will hold 89.99% stake post dilution. The issue will open for subscription till October 20 for qualified institutional buyers and October 21 for non-QIB buyers. Even the employees and retail investors will get 5% discount to the issue price.

Majority of experts as well as brokerage houses advice investors to subscribe to the issue as they like the company's growth and believe that it would consistently grow in future as well. "There is major demand for coal by power producing companies. Also Coal India provides cost at lowest price and valuation looks attractive," they reason.

Everyone agrees that pricing of the issue is better-than-expectations. The government has fixed a price band at Rs 225-245 a share and is offering more than 63 crore shares via IPO.

Prithvi Haldea, MD of Prime Database is happy with this price band. "I think this is a very good valuation but the more important issue is that the institutional investors should find this price attractive."

Futher he said the 5% discount will be good only in case the institutional response is very high, but would have been elated if this discount would have been 10% because motive and objective should be to get more and more retail investors. "Remember Reliance Power got 46 lakh investors for its IPO, Coal India could have got more. It still could happen even with 5% discount provided the institutional response is very strong," he explained.

But Jagannadham Thununguntla of SMC Capitals said, a 5% discount is definitely a good opportunity. "Though this 5% discount may not sound as such a big attraction in an FPO but in an IPO it makes sense."

"Even in the large picture point of view it is a very good opportunity for India to increase the Demat account penetration which has been a big problem in India because we hardly have 1.8 crore Demat accounts which is less that 1.5% of the Indian population. These are the kind of IPOs which create that kind of excitement to increase the Demat account penetration," he reasoned.

Even Deven Choksey of KR Choksey Securities feels that the band is better than expected and Thununguntla too says price band is quite reasonable and sensible. But SP Tulsian of sptulsian.com feels quite expensive.