When so much is going on world over, regarding Coal India IPO then how can this blog be left out. Let me try to give you an insight about this IPO to the best of my abilities. I will try to answer whether this IPO is worth so much hype it is creating?
Lets understand the whole coal mining scenario through these basic questions, before moving into an opinion:
What business is Coal India in?
It is in Coal Mining, and statistics says that it is the worlds larget coal producer, with a production of 431.26 million tonnes of raw coal in Fiscal 2010.
What is the future of Coal as a fuel?
I understand that there are many alternative fuels coming in, but Coal is one of the most economical fuel available to any industry. The rimary users of coal as a fuel are the steel and the cement industries. According to studies, by various economic bodies, the consumption of coal is going to increase at a rate of 2% - 3 % every year. More over the world has reserves of coal in almost every country, which is going to last for more than 100 years. So as long as you have coal available in the desired form, you would see the Sun shining over the coal mining industry.
How is Coal India Ltd. (CIL) Positioned?
Though Coal India Ltd is worlds largets coal producer, but still it is far less than what many countries produce. Infact Coking coal which is widely used by the steel industries across the world, is just around 8% of the total coal production. So all of a sudden you realise that Coal India would not be able to feed a major client, in case we see a surge in steel industry.
Now we would try to understand the basic fundamentals of the market and analyse how Coal India IPO is been looked by people/investors from various sects.
There are two basic things which drive the price of any share:
1. Fundamnetal drivers - like track record o fthe compnay w.r.t. growth, Profitability, debts etc.
2. Sentimental drivers - This is something where you can never have any predictive mathematics work. It is a question like why would one prefer Sharukh Khan more than Salman Khan or vice Versa. Well It is that inkling feeling amongst the investors which says even with 3 flops one after the other I would invest my money in a Sharukh Khan movie rather than an Amir Khan movie.
So from both the angles Coal India has scored very high points.After the de-regulation of coal prices in 1996 coal India has scripted an amazing turn around story and has remained profitable in the past decade.
So, over all from a very basic point of view here are some of my basic observations:
1. I believe that as retail investor, one would reap the best profit in the medium term i.e. 5-7 years .
2. Though Coal India Ltd. has started investments outside India, but it should be quick in making these investment over the next 2 years so that it has a better international clout, just like ONGC Videsh.
3. Now some guesstimate: I believe Coal India shares will touch 290-310 Price band in a couple of months.
Hope this layman analysis would help you in understanding this huge IPO!
My Rating: ***1/2
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