Coal India OFS – 5% retail discount – Good opportunity for investors

Coal India OFS - Good opportunity for investorsCoal India OFS – 5% retail discount – Good opportunity for investors

Coal India Offer for Sale (OFS) would open tomorrow (30-Jan-2015). Coal India would be the second company to hit the markets under the government's disinvestment programme. The government is selling 31.58 crore shares, or 5% stake, in a public offer with an option to sell another 5% through offer for sale (OFS) or auction route. Coal India share price is at Rs 374 on Thursday and Govt. of India has fixed the floor price at Rs 358 (4.5% less). Should you subscribe for Coal India OFS? How OFS works? When will be the allotment of Coal India OFS would happen?

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Coal India OFS – 5% retail discount – Good opportunity for investors

  • Coal India share price has closed on Thursday at Rs 374 per share.
  • Govt of India has fixed the floor price at Rs 358 which is 4.5% lower than Thursday's share price.
  • Retail investors would  get additional 5% discount on floor price of Rs 358 per share (Retail investor is a person investing less than or equal to Rs 2 Lakhs)
  • Retail investors can apply through their stock brokers / demat account for this OFS. In case of difficulty, they can contact their stock brokers and place the bid. They need to indicate quantity and price during such order.
  • OFS timings are 9.15 am to 3.30pm. This OFS is only for one day i.e. Friday (30-Jan-2015)
  • Govt of India is planning to sell overall 10% stake for which it would get Rs 22,600 Crores. However, in this issue, it may sell only 5%, i.e. Rs 11,300 Crores. In case there is enough demand, it would sell entire 10% stake sale through Greenshoe option.
  • 20% of such shares is reserved for retail investors.
  • There was news (not confirmed) that Govt. of India has asked SEBI to monitor this so that there is no manipulation in such OFS.
  • The government currently holds a 89.65 % stake in Coal India, which was listed through a record initial public offering (IPO) in October 2010, raising Rs 15,199 crore. At the IPO price of Rs 245 per share, the issue was oversubscribed 15 times.

What is Offer for Sale (OFS)?

Offer for sale, or OFS, is a relatively new mechanism meant for promoters of listed companies to dilute their holdings. Under this, the seller — in this case the government of India — uses a separate window provided by stock exchanges for selling their stake. This is different from an IPO or follow-on public offering (FPO), as they don’t use the stock exchange mechanism for conducting their share sale.

What stock brokers are saying about Coal India OFS?

Deven Choksey from RK Securities comments saying “Coal India, which has a virtual monopoly on coal mining in the country, is a fundamentally sound company and with the government pledging to double its production by 2019, the stock makes for a good long-term investment opportunity”.

Some brokers like Taran Bhanushali, IIFL say that the stock may underperform from after OFS date, and may test Rs 360 levels, where it may stabilize.

Analysts at Nomura say at Rs 358, the valuations are not stretched (FY16 price to earnings ratio of 10.35 times the normalized earnings per share of Rs 34.6 and the FY16 normalized ratio of enterprise value to operating earnings at slightly more than 6.8 times).

A poll by Bloomberg since the start of 2015 has 11 of 19 analysts giving a ‘buy’ or ‘accumulate’ rating on the stock. The average one-year target price is Rs 392.

How is Coal India stock price in last 12 months?

On Thursday, January 29, 2015, Coal India stock price closed at Rs 375, down by 2.32%. The 52-week high of the share was Rs 424 and the 52-week low was Rs 240.

Also Read: Ways to identify high dividend yield stocks for long term investment?

When will the Coal India OFS allotment happen?

The allotment of shares in an OFS for retail investors and all others who bid with 100% margin happens on a T+1 basis. It means that the shares appear in the account the next day of the trade. This is unlike an FPO, where the allotment process takes up to two weeks.

Disclaimer: I do not hold these shares currently as of 29th January, 2015 and neither I intend to buy these shares during Coal India OFS.

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Coal India OFS – 5% retail discount – Good opportunity for investors


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