- Shares of Coal India fell over 6% in pre-open trade after OFS announcement
- The government will sell up to Rs 5,000 crore worth of Coal India shares via OFS
- Floor price set at Rs 412, about 10% discount to current market price
Shares of Coal India declined over 6% in pre-open session on Wednesday, May 27, after the state-run coal miner announced that will launch a fresh offer for sale (OFS) starting today, with up to Rs 5,000 crore worth of shares to change hands. Shares of the world's largest government-owned coal mining company traded in the negative territory as the OFS opened for the stake sale. The OFS newsbreak confirmation came on Tuesday shortly after NDTV Profit reported about the upcoming issue.
Shares of Coal India opened at Rs 429 against a previous close of Rs 458.15 apiece on the NSE, declining over 6% before the opening bell. The PSU stock extended losses to hit an intraday low of Rs 428.40 apiece on the NSE. The stock has falled 3.08% in the last one week, but is up over 115 on a year-to-date basis and in the last one year. The stock last traded 2.78% lower at Rs 445.40 apiece on the NSE. The PSU commands a market cap of Rs 2,74,518.73 crore, as per stock exchange data.
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Coal India Share Price
Coal India OFS
The government will sell 1% stake in a base issue size of Rs 2,500 crore, while an additional 1% will be sold for Rs 2,500 crore through a green shoe option, taking the total potential transaction size to Rs 5,000 crore in the OFS. The floor price has been fixed at Rs 412 per share, which represents nearly 10% discount to the prevailing market price at the time of announcement. The stake sale forms part of the government's broader disinvestment programme and marks another step in monetising assets in state-run enterprises.
Over the last 16 years, the government has already raised close to Rs 47,000 crore through stake sales in Coal India. With the latest OFS, total proceeds from the company are expected to rise to nearly Rs 52,000 crore. The OFS is expected to attract strong interest from institutional investors given the discount to market price and the liquidity of the stock. The structure allows the government to efficiently reduce its stake while maintaining market stability through a staggered bidding mechanism.
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Should you buy or sell Coal India shares?
Bloomberg data shows that according to 25 market analysts tracking the stock, 13 maintain a 'buy' rating, five have pegged a 'hold' call, while the remaining seven analysts have a 'sell' rating. The average 12-month consensus price target on the stock is Rs 458.98. Global brokerage Morgan Stanley maintained an equal-weight on Coal India with a target price of Rs 420. ''The floor price is at a material discount to current market prices. It should act as an overhang and we expect the stock to remain volatile in the near term,'' said the brokerage.
Morgan Stanley believes the key risks to upside for Coal India are faster-than-expected thermal coal demand pickup, sharp hikes in domestic coal prices (both FSA and e-auction), and sharp improvement in cost ratios. On the other hand, the key risks to downside are slowing power demand slows, driving lower demand for coal, weak demand driving lower e-auction prices and, hence, weak realizations, as well as weak cash flows leading to the PSU's dividend cuts.
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