Edelweiss recommends ‘Buy’ on Coal India IPO

MUMBAI: Edelweiss has initiated coverage on Coal India with ‘Buy’ recommendation. Using the DCF methodology the brokerage has arrived at fair value of Rs 316 per share.

“CIL’s realizations are set to trend up in the future with virtually no probability of a price cut. With volume constrained by production challenges rather than demand, CIL’s earnings do not have commodity cyclicality. Overall, CIL has visibility of annuity like cash flows. Hence we believe the stock should trade at a premium to its commodity peers and closer to utility multiples.

We estimate CIL’s volumes and blended realisations to post a CAGR of 5% and 9%, respectively from FY10-12E leading to net profit to grow at a CAGR of 17% to Rs 134 billion by FY12E.

CIL would have net cash per share of Rs 71 as on FY11 end. Our DCF valuation with 13% discount rate works out to Rs 316. This implies an FY12E EV/EBITDA of 8.7x which is a 19% discount to the average multiple of our utility coverage universe. We initiate coverage with a ‘BUY’/’SO’ recommendation,” the report said.

Coal India will enter the capital markets Monday with India’s biggest ever IPO to raise around Rs 15000 crores. The objects of the offer are to carry out the divestment of 63.16 crore equity shares by the selling shareholder and to achieve the benefits of listing the equity shares on the stock exchanges.

Coal India will not receive any proceeds from the offer and all proceeds shall go to the selling shareholder.