Gupta Equities Pvt. Ltd.

I
I EQUITY I F&O I MUTUAL FUNDS I INSURANCE I DEBT I COMMODITIES I DP

13 October 2010 GEPL Investment Research l IPO NOTE I Coal

Coal India Ltd.
Issue Opens/ Closes for QIBs : 18 Oct/ 20 Oct 2010 Rating : Subscribe for Long Term
Issue Opens/ Closes for Non QIBs : 18 Oct/ 21 Oct 2010
Price Band : Rs 225 - Rs 245
Issue Highlights Coal India Ltd (CIL)
Industry Coal
Price Band Rs 225 - Rs 245 Introduction
Issue Value @ Rs 225 Rs 142 bn Until 1971 coal was mainly within the domain of private sector.
Issue Value @ Rs 245 Rs 155 bn On account of the growing needs of the steel industry and an
Face Value Rs.10 identified need to systematic exploitation of coal reserves, the
Post Issue Mkt cap
Central Government took a decision to nationalise the private
@ Rs 225 Rs 1421 bn
coal mines. The nationalisation was done in two phases, the
@ Rs 245 Rs 1548 bn
first with the coking coal mines in 1971-72 and then with the
non-coking coal mines in the year 1973. During this process,
Issue Details Coal India Limited (CIL) was formed in November 1, 1975.
Shares in Nos
Now CIL has grown upto being a Navratna Public Sector
Issue :
Fresh Issue -
Undertaking under Ministry of Coal, Government of India (GoI)
Offer for Sale 631,636,440 and has its Headquarters in Kolkata, West Bengal. The
Of which : Company produces non-coking coal and coking coal of various
Employee Reservation Portion 63,163,644 grades for diverse applications. Coal India's major consumers
Net Issue : - are the power and steel sectors and others include cement,
Retail Portion (Atleast) : fertiliser, brick kilns etc.
Equity shares outstanding prior to the issue 6,316,364,400
Equity Shares outstanding post issue 6,316,364,400 CIL has nine subsidiaries involved in coal production in India:
SECL, MCL, NCL, CCL, WCL, ECL, BCCL, MNS and MJSJ. Another
Subsidiary, CMPDIL provides technical and consultancy
Objects of Issue
services and CIAL pursues coal mining opportunities in
Objects of the Offer Mozambique.
The Objective of the issue is to divest 10% of GoI equity
shares of Coal India.
Investment Rationale:

Shareholding Pattern
Largest coal Producer
Being a governed sector, Coal production in India is primarily
Pre Issue Post issue dominated by the PSUs under the central and the state
Promoters & Promoter Group 100.0% 90.0% governments. In FY09 coal met 52% of the total primary energy
Institutions 4.5%
requirement of India and CIL, the largest coal producer in the
Non-Institutional 4.5%
country, contributed about 82% of the total production of coal
Employees 1.0%
Total 100% 100%
in FY09. In FY10, Coal Production grew by 6.8% from 403.73
million ton (MT) in FY09 to 431.26MT in FY10.
Coal Production

400

200

0
FY06 FY07 FY08 FY09 FY10

Coking 24 24 26 27 36

Non Coking 319 337 353 377 395

Source: CIL website, GEPL Research

GEPL Investment Research I Puja Gupta I +91 22 66182436 I puja@guptaequities.com I 1

 Gupta Equities Pvt. Ltd.
I
I EQUITY I F&O I MUTUAL FUNDS I INSURANCE I DEBT I COMMODITIES I DP

13 October 2010 GEPL Investment Research l IPO NOTE I Coal

The Company produces non-coking coal and coking coal of various grades through its
subsidiaries. Non-coking coal represents a substantial majority of raw coal production
which is fit for use in the power sector.

As per the Annual Plan 2011 of the MoC, CIL intends to increase the production to 460.50 MT
in FY11 and to 486.50 MT in FY12. CIL aims to reach a production level of 664MTs in 2016-
17.The Company further plans to focus on mining deeper seams of comparatively better
quality coal and the capital equipment program has been formulated with a view to
increasing production.

Huge untapped reserves

As of April 2010, the geological resource of Indian coal was 276.81 BT, out of which CIL has a
total of 64.22 BT providing it huge exploration opportunities for future to meet the
increasing demand.
Resource Status
(in MT)
Measured/proved Indicated Inferred Total
India 109,798 130,654 36,359 276,810
Coal India 51,326 9,924 2,967 64,218
Source: GSI, CIL RHP, GEPL Research

Until 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 MTPA. CIL intend to develop an additional
20 coal beneficiation facilities with an aggregate additional proposed feedstock capacity of
111.10 MTPA.

Increasing demand

Coal meets 52.4% of energy needs in India and about 77.0% of non-coking coal in India was
consumed by power sector in FY09. In addition, other industries such as steel, cement,
fertilizers, bricks manufacturing, textiles and chemicals require significant coal input. As per
the Integrated Energy policy, the coal requirement in India is expected to reach 657 MT by
2012 and 2040 MT by 2032.

Coal based power generation is most preferred in India, due to the huge reserve available
and the low generation cost. Also the vast iron ore reserves have lead to the development of
huge steel capacities in India. As a result of the high demand in the said industries, demand
for non-coking coal in India is expected to increase at a rate of 11.3% from 508 MT in FY09 to
868 MT by 2014, while the demand for coking coal is likely to increase at the rate of 9.7% in
the same period.

Operational efficiency

Coal mines held by CIL have favorable geographic and geological conditions which helps it
to operate large open cast mines within shorter time frames and with low investment.
Majority of coal mines of CIL are open cast wherein the cost of production is lower as
compared to underground mines. In FY10, 90% of the coal was produced from open cast
mines having an average cost of production of Rs 519.96 per ton as against Rs 2,795 per ton
from underground mines, which is significantly on the higher side.
GEPL Investment Research 2
 Gupta Equities Pvt. Ltd.
I
I EQUITY I F&O I MUTUAL FUNDS I INSURANCE I DEBT I COMMODITIES I DP

13 October 2010 GEPL Investment Research l IPO NOTE I Coal

International Initiatives

CIL plans to acquire coal assets in Australia, Indonesia and the United States as well and has
thus budgeted to invest Rs 60 bn in FY11 for the acquisition of international coal assets. CIL
has won a global tender to acquire two coal blocks in Mozambique for exploration and
development in August 2009 for a period of 5 years.

Planned Capital Expenditure

The company has an authorized budgeted expenditure of about Rs 38.0 bn for FY11 and Rs
46.5 bn for FY12. The capex plan for FY11 includes acquiring heavy earthmoving
machinery for open cast mining, equipment for underground mining operations, mine
development expenses, expenditure for exploration and drilling and development of
railway infrastructure.

Key Concerns

PExecution Risk – Issue in land acquisition, environmental clearances, variance in

estimation of potential reserves, etc
PInfrastructure hurdles in case of non pit head projects and requirement to
transport
PQuality of Coal
PCompetition from international players as Indian majors are acquiring stake in coal
mines abroad
PFluctuation in International coal prices

Outlook

CIL is the largest coal producer in India contributing 82% to the country's coal production
and has proved reserves of 10,595.1 MT for future exploration and to meet the increasing
demand for coal. CIL has seen production growth at a CAGR of 5% for last 5 years. The
demand for coking coal is expected to grow by 9.7% and non coking coal to grow by 11.3%
till FY14 which augurs well for CIL as it has a significant share in the sector, one can expect
the company to perform well going forward. At the current price IPO is an attractive issue
for subscription particularly for those looking at long term gains.

GEPL Investment Research 3

 Gupta Equities Pvt. Ltd.
I
I EQUITY I F&O I MUTUAL FUNDS I INSURANCE I DEBT I COMMODITIES I DP

13 October 2010 GEPL Investment Research l IPO NOTE I Coal

Consolidated Profit & Loss Statement:

(Rs. in Mn)
Particulars FY10 FY09 FY08 FY07 FY06
INCOME 525,923 460,641 386,167 350,054 340,088
Sales 446,153 387,888 326,339 296,022 287,018
Coal Issued for other Purposes 20,690 20,220 19,745 19,405 20,540
Accretion in Stock 6,672 1,336 2,442 2,476 4,838
Other Income 52,408 51,196 37,641 32,152 27,691

EXPENDITURE 370,883 384,833 288,075 249,753 238,166

Internal Consumption of Coal 19,721 19,922 19,509 18,480 20,137
Consumption of Stores & Spares 49,269 48,613 43,786 41,256 38,888
Employees' Remuneration & Benefits 166,555 197,421 126,352 100,975 97,880
Power & Fuel 17,396 15,951 15,937 16,003 15,513
Social Overhead 20,175 18,851 16,229 14,780 13,677
Repairs 8,479 7,861 7,097 6,649 6,502
Contractual Expenses 37,318 33,399 26,333 20,934 19,745
Miscellaneous Expenses 19,336 19,285 14,873 12,640 13,281
Overburden Removal Adjustment 30,539 21,772 15,640 16,866 12,099
Provision/Writeoff 2,094 1,760 2,320 1,169 445

EBITDA 155,040 75,807 98,092 100,301 101,922

(% of Net Sales) 35% 20% 30% 34% 36%

Depreciation 13,138 16,629 15,299 13,116 13,154

Impairment 156 280 307 462 319
Interest 1,365 1,565 1,499 849 909
Finance Charges/Commitment Charges 195 224 194 232 283
Prior Period Adjustment -537 277 1,111 221 285
Profit before tax 140,722 56,832 79,682 85,421 86,972
(% of Net Sales) 32% 15% 24% 29% 30%

Tax 43,425 36,632 34,745 28,937 28,970

Profit After Tax 97,298 20,200 44,936 56,484 58,002

(% of Net Sales) 22% 5% 14% 19% 20%
Source: GEPL Research

GEPL Investment Research 4

 Gupta Equities Pvt. Ltd.
I
I EQUITY I F&O I MUTUAL FUNDS I INSURANCE I DEBT I COMMODITIES I DP

13 October 2010 GEPL Investment Research l IPO NOTE I Coal

Consolidated Balance Sheet:

(Rs. in Mn)
Particulars FY10 FY09 FY08 FY07 FY06
FIXED ASSETS
Gross Block 349,453 332,550 318,592 307,017 296,734
Less:
Accumulated Depreciation 224,911 218,028 210,095 199,310 177,916
Provisions 4,232 4,434 4,111 3,782 15,520
Net Block 120,310 110,088 104,387 103,925 103,298

Capital Work in progress 20,909 18,223 15,392 12,377 10,988

Surveyed off Assets 1,198 972 291 241 228
Total Fixed Assets 142,416 129,283 120,071 116,543 114,515
Investments 12,823 15,052 17,179 20,259 22,445
Deferred Tax Assets 9,658 9,548 7,878 6,602 7,281

CURRENT ASSETS, LOANS AND ADVANCES

Inventories 44,018 36,669 34,074 31,250 29,134
Sundry Debtors 21,686 18,475 16,572 16,822 18,841
Cash and Bank Balances 390,778 296,950 209,615 159,293 134,272
Loans and Advances 86,762 117,271 102,663 78,184 65,004
Total Current Assets 543,244 469,364 362,923 285,549 247,252
Total Assets 708,141 623,247 508,050 428,954 391,492

LIABILITIES AND PROVISIONS

Secured Loans 4,669 1,805 2,247 3,327 2,477
Unsecured Loans 16,199 19,680 16,592 18,112 20,713
Current Liabilities & Provisions 413,825 399,423 305,945 236,171 216,438
Minority Interest 236 19
Shifting and Rehabilitation Fund 14,774 12,238 9,459 6,881 4,859
Deferred Tax Liability 1,801 2,331 4,469
Total Liabilities 449,704 433,165 336,043 266,822 248,956

NET WORTH
Share Capital 63,164 63,164 63,164 63,164 63,164
Reserves & Surplus 195,274 126,918 108,843 98,968 79,373
Total 258,437 190,081 172,007 162,131 142,536
Total Liabilities 708,141 623,247 508,050 428,954 391,492
Source: GEPL Research

Puja Gupta
puja@guptaequities.com I +91 22 6618 2436 I GEPL Investment Research

Disclaimer: This document has been prepared by the Research Desk of M/s Gupta Equities Pvt. Ltd. and is meant for use of the recipient only and is not for
circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to
support any security. The information contained herein is obtained and collated from sources believed reliable and we do not represent it as accurate or complete
and it should not be relied upon as such. The opinion expressed or estimates made are as per the best judgment as applicable at that point of time and are subject to
change without any notice. Gupta Equities Pvt. Ltd. along with its associated companies/ officers/employees may or may not, have positions in, or support and sell
securities referred to herein.

GEPL Investment Research 5