Mumbai: Coal India shares are set to post double-digit gains on their debut on Thursday thanks to strong demand from investors who received only a fraction of the shares they applied for in its record $3.5 billion IPO.
A Reuters poll forecast Coal India shares would rise to about Rs287 in their first day’s trade, a 17% premium to its IPO price of Rs245 a share. The estimates ranged from Rs270 to Rs325 in a poll of 12 analysts, traders and fund managers.
State-run Coal India’s IPO, India’s largest ever, attracted bids for more than 15 times the shares on offer, luring investors with its dominant position in a country that is heavily reliant on coal-fired power and a valuation considered attractive relative to global peers.
“Given the level of oversubscription and the valuation the market was expecting before the price range was set, a premium is a foregone conclusion,” said Ambareesh Baliga, vice president at Karvy Stock Broking.
“Question is: whether it will sustain in the medium term?” At its offer price, Coal India is worth nearly $35 billion, ranking it seventh among India’s listed firms. Any significant listing gains could bump up its ranking above leading power utility NTPC and India’s second largest outsourcer, Infosys.
Kolkata-based Coal India, which accounts for nearly 80% of coal output in Asia’s third-largest economy, will benefit from coal demand in India that is expected to grow 11% annually.
The country aims to halve its peak-hour power deficit of nearly 14% over the next two years and triple generation capacity over the next decade.
Strong Demand Asia has led the world in IPOs this year, raising a record of more than $127 billion and accounting for more than two-thirds of all global volume, according to Thomson Reuters data.
Coal India’s IPO generated a huge response from investors keen on broader exposure to an economy growing at 8.5%. The offer attracted bids worth about $50 billion, double the total portfolio investments made by foreign stock investors in India so far this year.
Its institutional order book was heavily oversubscribed, with orders worth about $27 billion from foreign investors alone. Individual investors applied for more than two times the shares on offer to them, attracted by 5% discount on the institutional offer price.
Coal India expects net profit to rise by a quarter this fiscal year, valuing the company around 13 times its expected 2010-11 earnings at the offer price.
By comparison, China’s Shenhua Energy, the Indian miner’s closest rival, trades at 16 times forward earnings, while smaller Indonesian peer Adaro Energy has a ratio of 22 times. US miner Peabody Energy trades at 17 times earnings.
“Its a one-of-a-kind company, its the largest in the world, so there will be demand. There were no anchor investors, so that should add to appetite from institutions,” said V K Sharma, head of private broking at HDFC Securities.