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UPDATE 1-Coal India shares rise by one-third in IPO debut

Published 11/04/2010, 12:32 AM
Updated 11/04/2010, 12:36 AM
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* Debuts at 295.7 rupees vs 245 rupees issue price

* Stock gains as much as 33 percent in early trade

* Market value tops $45 bln, ranks no.5 among listed firms (Adds details, quotes, background)

By Prashant Mehra

MUMBAI, Nov 4 (Reuters) - Shares in Coal India rose by a third in their trading debut on Thursday, topping expectations, as investors added to their positions after receiving fewer shares than they had sought in the heavily oversubscribed listing.

The Indian government raised $3.43 billion in India's largest ever IPO, part of a broader plan to divest stakes in state run firms over the next few years.

An attractive valuation and exposure to surging power demand in Asia's third-largest economy drove heavy investor demand for the IPO.

Coal India shares opened at 295.70 rupees on the Bombay Stock Exchange, compared with a Reuters poll forecast for the shares to rise to about 287 rupees on their first day of trade, and rose as high as 326 rupees for a gain of 33 percent.

"I would ideally recommend booking profits after this mind-boggling debut, as it may not grow like this from here in the near term," said Arun Kejriwal, director of research firm KRIS.

The strong performance gives Coal India a market value of more than 2 trillion rupees ($46 billion), making it the fifth-largest listed Indian company ahead of leading power utility NTPC and No. 2 outsourcer Infosys).

"Coal India is definitely an attractive long-term buy," said Rakesh Rawal, head of private wealth management at Anand Rathi. "The confidence of retail investors in IPOs is seen returning with Coal India."

The offering comes at the peak of one of the best years for IPO fund raisings in India and amid a boom in IPO markets across Asia. 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.

Strong investor interest is expected to build momentum for other government divestments in the pipeline, although the Coal India share sale could also put pressure on the government to price further share sales attractively.

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.

ATTRACTIVE BUY

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 has made it a near must-own for investors.

Demand for coal is forecast to grow 11 percent a year in India, which aims to halve its peak-hour power deficit of nearly 14 percent over the next two years and triple its generation capacity over the next decade.

Kolkata-based Coal India, which accounts for nearly 80 percent of coal output in the country, reported earnings per share of 15.60 rupees in 2009/10.

It expects 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, trades around 16 times forward earnings, while smaller Indonesian peer Adaro Energy has a ratio of 22 times. U.S. 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 and leading India's hunt for coal assets overseas.

The state monopoly has set aside $1.2 billion for the purpose and is currently evaluating proposals to buy stakes in coal firms in the U.S., Australia and Indonesia. ($1=44.3 rupees) (additional reporting by Ami Shah; Writing by Sumeet Chatterjee; editing by Tony Munroe)

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