Coal India IPO note – published on Sat, Oct 23, 2010

I am positive on CIL as a company, and the IPO, for the following reason
· Indian industry needs Coal, and CIL has 80% of market share, with all production being lapped up by consumers
· India will stay energy deficit for a while to come.
· Our energy consumption is still tilted towards coal (for power generation)
· CIL is profitable and is looking at steady capacity growth and margin improvement
· CIL has communicated that
– it is aware that coal is of low quality and is improving output quality by investing in washeries
– that mining is destructive to environment, and has committed to extensive re-forestation and CSR
· The competing energy sources – Gas, fuel oils, nuclear – are low in terms of available / discovered reserves in India
· Hydro has larger environmental impact and R&R issues.
· Alternative energy like solar, wind, etc are expensive, difficult to scale up. It will take time for these technologies to become feasible. I lost my shirt in Suzlon ;-)
· I believe that organisations like ONGC and CIL will in the years to come, invest in and transition to sustainable technologies and operations for energy production, as they become feasible.
· In terms of pricing and immediate returns outlook, CIL is attractive.
· At 15 times over subscribed for the largest Indian IPO by size, we have a stunning signal for the markets – very positive indeed.
· I classify CIL as same category as ONGC, a safe long term investment, one must not expect too much from it.


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