Oct 18, 2010, 11.22 AM IST | Source: CNBC-TV18

Attractively priced CIL poised to touch Rs 300: Udayan

CNCB-TV18s managing editor Udayan Mukherjee finds the issue is very attractive and sees this as an opportune moment for investors to remain investors for a longer period. Retail has so far stayed away from the recent rally in the market and urges retail to subscribe.

Udayan Mukherjee, managing editor, CNCB-TV18

State-run coal producer Coal India's (CIL) initial public offer (IPO) has opened for subscription today. The company aims to raise more than Rs 15,000 crore through the IPO, which is the largest IPO in Indian history. The hotly contested IPO has the government of India divesting 10% of its stake in the company by offering 63.16 crore shares in the price band of Rs 225-245.

CNCB-TV18s managing editor Udayan Mukherjee finds the issue very attractive and sees this as an opportune moment for investors to remain invested for a longer period. Retail has so far stayed away from the recent rally in the market and he urges retail to subscribe.

They should subscribe in whatever ways they can. It doesnt matter what the stock market is at the time Coal India lists, even if the market is volatile and you get Rs 15-20 less than what you are expecting to get, thats fine, he said.

He says to look at a three-six-12 month period to book good returns.

Below is a verbatim transcript of his interview with CNBC-TV18s Sonia Shenoy. Also watch the accompanying video for more.

Q: If you had to map the valuations for Coal India, things look really strong in terms of both headroom to raise prices and the potential going forward as well?

A: That is right. What the management is indicating is that things could turn dramatically upwards from about three years from now but even if you dont have that long a perspective, on current earnings or next years earnings, I think they have still left a lot on the table.

The fact that they are talking about washable coal or washed coal which will generate higher margins that will kick in FY13-14 onwards, that is a little far away. Even if you map it on next years valuations the stock at 11-12 PE or EV/EBITDA of 6-7 times is very attractively priced.

Generally you want good quality paper to leave 10% on the table for investors when they do an IPO. Coal India has left 20% plus on the table and in that you cannot fault the government. People are being slightly greedy because this is such a big issue and a possible game changer for retail which has stayed out of the stock market, that everybody wants a slightly lower price for retail.

But even Rs 233 assuming that issue gets done at Rs 245 which is most likely; Rs 233 is a very good price for retail to get in. So they have left 20% on the table. The issue is very attractively priced and one should have no complaints about what the government has done this time around.

Q: An indication of the retail frenzy perhaps is wherever you go everyone asks is - should you subscribe to the Coal India IPO?

A: I think they should. The only issue is that you dont know about the market because ten days from now where will the stock markets be? We are already trading at elevated levels. If the trend continues and we go to 6,300 or make a new high, then Coal India will list at a big pop.

What if the market corrects which is not unlikely, it can correct at anytime from these kinds of levels. If the Nifty is at 5,600-5,700 by the time Coal India comes to list, then that would take away a bit of sheen from the grey market indication of where the stock might list. All that is a little difficult to predict and sadly all our investors seem to have the habit of playing for the pop. They just want to sell on day one or day two and in that the state of the stock market becomes quite relevant.

My sense is Coal India is an issue which you would do well to hold on for the slightly medium-term. It is not one of those quickly flip, get your 10% and get out kind of issues. Retail should subscribe and they should subscribe in whatever ways they can. It doesnt matter what the stock market is at the time Coal India lists, even if the market is volatile and you get Rs 15-20 less than what you are expecting to get, thats fine.

If you can hold for three-six-12 months, you will make a lot of money. People will see Rs 300 on Coal India quite easy over the next six months. Now whether it happens in six days or six weeks or six months is difficult to predict but they will see Rs 300 and when you can have that visibility Rs 230-300, thats a good 25% visibility, then you should be buying that stock.

I dont think retail has anything to worry about. They should not be concerned about what happens on day one of listing, they should just buy with an intention of holding for a period of time and making a lot of money. I think people did that with a lot of old PSU listings or IPOs. Suddenly the trend changed and everybody started flipping around. This is a good one and comes at a good discount of fair value.

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