Mumbai: Shares in Coal India surged 40% on debut after a record $3.4 billion IPO as investors snapped up a stock that is a proxy for surging growth and energy demand in Asia’s third-largest economy.
An attractive IPO valuation for India’s dominant coal miner spurred demand from investors who applied for more than 15 times the number of shares on offer in the country’s largest-ever IPO, which was priced at the top of its offer range.
“Fundamentally, Coal India is a structural play on India’s rising energy demand,” said Binay Chandgothia, chief investment officer at Principal Global Investors in Hong Kong.
The rousing response sets high expectations for share sales by a government looking to shed stakes in some 60 companies over the next few years, putting pressure on New Delhi to price future offerings at discounts to peers.
State-run Coal India’s IPO comes at a time of record foreign inflows into Indian stocks and in one of the best years for IPO fundraisings for the country. A boom is also sweeping across Asia’s IPO markets, with more than two-thirds of the global volume in 2010 being raised in the region.
Coal India shares closed at Rs 342.35, 39.7% higher than their Rs 245 offer price and well above the 18% first-day gain forecast in a Reuters poll.
The stock accounted for more than 40% of the volume traded on India’s two main bourses, and was helped by a buoyant market that saw that main Sensex close up more than 2% at a record closing high.
“This is better than we expected. With this IPO the government has given the best Diwali gift to the investing public,” Coal India Chairman Partha Bhattacharyya said at a listing ceremony in the trading ring of the BSE, with the hall lit up with lanterns ahead of Diwali, the Hindu festival of lights.
The strong performance gave Coal India a market value of Rs 2.16 trillion ($48.9 billion), vaulting it into fourth place among India’s most valuable companies, behind energy giants Reliance Industries and state-run ONGC and State Bank of India.
“This is a perfect stock for long term pension and insurance funds, and there still is a lot of unsatisfied demand,” said Jagannadham Thunuguntla, equity head at SMC Capital.
It also contrasted with the subdued debut in Spain and Italy on Thursday by Enel Green Power, whose shares fell after the company’s €2.5 billion ($3.54 billion) IPO, Europe’s largest in three years.
So far this year, Indian firms have raised $7.8 billion in IPOs, Thomson Reuters data showed, within touching distance of the record $8.4 billion raised in 2007.
“The fourth quarter typically tends to be strong for Indian equity markets, so it’s a happy situation, given the global environment that’s benefitting from US QE2,” Chandgothia said, referring to the stimulus plan unveiled by the Fed on Wednesday.
A record $26.3 billion in foreign fund inflows into stocks this year brightens the outlook for India’s divestment program, which has had mixed success thus far this year.
A follow-on public offering in transmission utility Power Grid Corp to raise up to $1.9 billion will open next week. That will be followed by a $270 million IPO in Manganese Ore India Ltd in early December and another follow on offer in Hindustan Copper that could raise $1.6 billion.
Coal India’s dominant position in a country that is heavily reliant on coal-fired power, an attractive valuation relative to peers and its expected inclusion in indexes in about one month has made it a near must-own for investors.
Demand for coal is forecast to grow 11% a year in India, which aims to halve its peak-hour power deficit of nearly 14% over the next two years and triple its generation capacity over the next decade.
Coal India has set aside $1.2 billion to buy coal assets abroad, and said on Thursday it had submitted non-binding bids for two or three projects in Australia and Indonesia.
The Indian economy is on track to grow at about 8.5 percent in the current fiscal year.
Kolkata-based Coal India, which accounts for nearly 80% of coal output in the country, reported earnings per share of Rs 15.60 in 2009-10.
Risks include a Maoist insurgency in key mining areas and environmental challenges to new mining projects in India. The company also prices coal about 60 percent lower than global prices, in part because of comparatively low quality coal.
It expects profit to rise by a quarter this fiscal year, valuing the company at roughly 17 times expected 2010-11 earnings after its share price rally on Thursday.
By comparison, China’s Shenhua Energy, trades around 16 times forward earnings, while US miner Peabody Energy trades at 17 times earnings.
Coal India’s growth plans include focusing on expanding margins by selling more high quality, higher-priced washed coal as well as leading India’s hunt for coal assets overseas.