Coal India Ltd : India Inc's Biggest IPO

Coal India Limited (CIL) is a public sector undertaking of the Indian Government. It is the world's largest coal miner. A 'Navratna' Public Sector Undertaking under Ministry of Coal, Government of India, it has its Headquarters in Kolkata, West Bengal. CIL produces non-coking coal and coking coal of various grades for diverse applications.

CIL, a state-owned company, was established in 1973 and is the largest coal producer in the world (based on raw coal output), with a dominant 82% market share. CIL also holds the world’s largest coal reserves with proven resources of 52,545mn tonnes (million tons.) and meets as much as 42% of India’s primary commercial energy requirements.

As of end of FY10, CIL operated 471 mines in 21 major coalfields across eight states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (includes both open cast and underground mines). It also operated 17 coal beneficiation facilities with an aggregate designed feedstock capacity of 39.40 million tons per annum. CIL intends to develop an additional 20 coal beneficiation facilities with an aggregate additional proposed feedstock capacity of 111.10 million tons per annum. Besides this, it provided 85 hospitals and 424 dispensaries.

The Mission of Coal India Limited is to produce the planned quantity of coal, efficiently and economically with due regard to safety, conservation and quality. The major consumers are the power and steel sectors. Others include cement, fertiliser, brick kilns etc.

The Biggest IPO to hit the Indian Markets : Coal India IPO.

Coal India (CIL) will open its initial public offering (IPO) for subscription on October 18, 2010. The company is offering 63.16 crore equity shares through the issue, which is an offer for sale by the President of India, acting through the ministry of coal, Government of India.

Dharmesh Mehta, MD, Institutional Equities, Enam Securities, one of the lead mangers to the issue, says the response to Coal India road show is overwhelming. “It's a game changer for sure for India rather than only for the IPO market because this can bring a lot of retail investors back to the markets which were so far shying away.”

CIL’s net profit has grown at a CAGR of 13% over FY06-FY10 while ROE, which decreased steadily from 42% in FY06 to 27% in FY09, has rebounded sharply to 44% in FY10. The company is expected to surpass its past growth rates and report a net profit CAGR of 18% over FY11-FY13,

CIL has cash of Rs 369bn on its books which could be used for future expansion plans and international acquisitions, thereby further bolstering ROE. In addition, a net worth of Rs 258bn would qualify the company for global project bids.

Turnaround in key subsidiaries

CIL has 11 direct and indirect subsidiaries of which 9 are associated with coal production. ECL and BCCL, two key direct subsidiaries of the company, were making losses and had been referred to the BIFR (Board for Industrial & Financial Reconstruction). The BIFR has approved their revival plans and we note that both companies have turned around at the net profit level in FY10. A stronger operating performance is expected from these subsidiaries considering that employee costs have been reined in and labour productivity ramped up. ECL and BCCL together accounted for 13.5% of CIL’s total production in FY10.

Bharti Airtel : Shaping a Global Dream

Bharti Telesoft , established in 1995 as a small telecom venture, emerged to be the largest integrated telecom player by 2006. It was rechristened as Bharti Airtel, a brand people all over India readily reckon. After the public listing in 2001, the company had always focussed on growth – through both organic and inorganic means. While Airtel’s acquisition of JT Mobile and Skycell helped it become a pan India player, it’s the master IT infrastructure outsourcing deal which contributed to the humongous growth during 2003-2008. While revenues and EBITDA grew at CAGR of 54% and 72% respectively, the subscriber base grew at a CAGR of 82%. As on May 2010, the company had 134 Million subscribers commanding 30% market share.

As the high ARPU urban Indian mobile market saturated, telecom companies started looking for growth opportunities outside India. From mid 2008, Airtel started exploring the possibility of acquiring South African telecom major MTN. The deal envisioned Bharti acquiring MTN operations in 21 countries for a whopping US $45 billion. MTN tried something similar to make Bharti a subsidiary and the deal fell apart.

Bharti continued its position as a market leader in India and also launched services in Sri Lanka during end of 2008. However, the MTN deal was still on their mind. Almost a year later, Bharti started new negotiations with MTN in May, 2009. The proposed deal was a US$23 billion merger creating a telecom behemoth with 200 million subscribers and US$20 billion in revenues.

The deal structure included Bharti holding a 49% stake in MTN and MTN on their part holding 36% in Bharti. A dual listing at Indian and South African markets was proposed to maintain respective company identities. However, even after much negotiation, the South African government did not let go a prized asset like MTN and deal had to be called off.

By 2010, with introduction of newer players in the Indian market, the competition got stiffer and the tariff war seriously squeezed margins. Desperate of inorganic growth, Airtel acquired a 70% stake in Bangladesh’s Warid Telecom for US$ 300 million in early 2010.

During Feb 2010, the news of Bharti’s acquisition of Zain Africa surfaced for the first time. The proposed deal included Zain’s operations in 15 African countries, excluding Sudan and Morocco, with a combined user base of 40 million subscribers. The deal provided Bharti with opportunities in 15 new geographies, with low penetration and huge growth oppurtunities.

Having faced with bitter consequences twice, the management was extra cautious not to let go of this last opportunity. The roadblocks this time was steep valuations, regularity oppositions from Governments of Congo and Gabon as well as a minority ownership dispute in Nigeria from local player Econet. Bharti’s dedicated persuasion, lead by Sunil Mittal himself, ultimately bore fruit.

Finally, in June 2010 Bharti acquired Zain’s Africa assets for an enterprise valuation of US$ 10.7 billion, making it the world’s 5^th largest telecom player, with 170 million subscribers and US$13 billion in revenue – a truly global enterprise.