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Coal India IPO


I am not a great fan of IPOs. I read in one of the books about the Oracle of Omaha that at the time of IPO the purpose of the company is to extract maximum out of the buyers and not to make them rich. In earlier days in India there used to be a dinosaur called CCI or “Controller of Capital Issues” who will decide how much a company can charge for the share price it is issuing in the market. Then during the avalanche of liberalization this dinosaur got buried and companies were free to decide the market price of their share. Now if you are selling something in market what would you like to be price of the item you are selling?

If your answer is anything besides highest possible then you should not be reading this blog rather read some blog on poetry or spirituality.

So if the aim of the company is to get highest possible prices for its share then definitely its aim is to make itself rich not you. So why should you buy the shares? Any ways if you check the track record of all the issues in the last 5 years you will find that most of them are trading below their issue prices.

With this background in mind let us talk about Coal India issue. I deliberately am writing this piece after the issue has closed today earlier in the day. (not that there are people waiting for my blog to take a decision on the Coal India IPO). The reason for not writing earlier was I was not sure if I should go for the IPO or not.

Here is what I was trying to analyze in the most simple manner:

  1. Does the company has good management
  2. What about the competition?
  1. I am not smart enough to take a call on the financials so I just looked at the big picture. Even after listing the Govt of India will hold above 90% in the company. If we go by past track record in last 10 years most of the PSUs are doing good as the government seems to be serious about delivering ( across party line be it BJP or Congress or regional parties like in Tamil Nadu or Bihar).
  2. Coal India is in a monopolistic condition it is India’s largest coal producer the next one being Neyveli Lignite Corporation which is also owned by Government so the two companies are highly unlikely to compete with each other.

Hey so we have a monopoly which is managed well and has a product that will be in demand for producing power for a long period to come. The coal from Australia is better in quality but also costly. Also as a retail investor I begin by a 5% advantage since retail investors are given a 5% discount.

Considering all this I decided to apply for the issue. Now let us wait and see how this decision comes out once the stock is listed in first week of November.

Thanks for reading, do leave a comment.

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