Business
Coal India subsidiary IPOs could boost shareholder returns: Parthiv Jhonsa
ET Now spoke with Parthiv Jhonsa from Anand Rathi Institutional to get a deeper perspective on what this means for the company and its investors.
“So, this is definitely something big coming out from the company with BCCL already on track to get listed in next about good two to three weeks kind of a timeline. There were news articles floating yesterday where it came out valuation of the company is about 13,000 odd crores and then yesterday evening they came out that SECL and MCL both have got in-principle approval, like rightly mentioned before both of these entities are substantially big, contributing almost close to about good 45% to 50% of the bottom line for Coal India as an entire entity,” Jhonsa said.
He added that MCL stands out in terms of operational efficiency. “As far as MCL is concerned, it basically beats a lot of front compared to the other subsidies as far as your manpower productivity or output, they call it OMS is concerned, OBR is concerned. So, all those front MCL basically is way better placed than the entire blended basis. So, it is a very positive move in my opinion. Come FY27 it will take about good one, one-and-a-half year for the company to also get the nod and regulatory approvals and this is a practically a good value unlocking which is there on the plate.”
When asked about the potential valuation impact of these listings, Jhonsa noted, “So, if you just take say BCCL as a ball mark, 13,000 crores, if you see BCCL in H1 whatever the numbers the company has declared, the profitability is actually down substantially, almost good about 80% to 83% it is down. So, let us just compare that, even if you get a 1x the top line which is there in the case of BCCL, it was almost about 13,500-14,000 crores kind of a topline company FY25 and the similar market cap is expected on listing. Even if you consider that, then SECL and MCL both put together close to about somewhere around in the range of 65,000 to 70,000 crores both put together, so that is a very rough benchmark number, but it all depends on the ministry, it all depends on the circumstances and the markets definitely. So, it is still way ahead in time, but yes it is a substantial value unlocking, just like we put it across that way. As I told you earlier, MCL is much better placed as far as the operating metrics are concerned, the nitty-gritty are concerned than the other subsidiaries which are getting listed today. So, I feel that it will be a much better value unlocking happening in the future.”
On the question of whether the listings could result in a holding company discount for Coal India, Jhonsa explained, “No, definitely, there definitely will be some holding company discounts coming in, but then also the company has a couple of other subsidiaries like NCL and CCL still there on the books. There are no other notification coming out for those two other major subsidiaries as well. So, they still have good subsidiaries on their books. Apart from that what I believe right now they only diluting about 10% in BCCL. If that is the kind of a dilution, then there would not be a substantial kickback as a holding company discount.”
Regarding the best approach for shareholders—whether via share swap or cash proceeds from the Offer for Sale—Jhonsa emphasized the preliminary nature of the process. “Honestly speaking, this is way beyond anyone’s understanding right now because it is too preliminary. It is just they have just received in-principle approval. What they did with BCCL is that they are doing an OFS, so the cash would be coming in the books. I am not too sure as on date because it is too preliminary to say for MCL and SECL because now it will go to the concerned departments, the ministries, and there is a long process to be there. So, it is too preliminary to say whether its OFS is 10%, 15%, or it is through cash route, or it is fresh it is too preliminary.”When discussing Coal India’s current price and upside potential, Jhonsa said, “So, right now our target price, the last release report, was about Rs 440. So, still there is about good 10% upside from the current levels. As far as what is built in, definitely sentimentally it is a very positive upside because two of the major entities are coming out and have got in-principle approval. This company was communicating with a lot of shareholders and stakeholders over last couple of years practically speaking, but now it is finally the ball is rolling and that is actually sentimentally quite positive. So, what is built in the price, it all again, as I told you, it depends on a lot of nitty-gritties like what are they basically offloading, what is the valuation and so on and so forth because if the valuation is good, definitely there is further upside. So, it all depends. Let us also wait for what the company is saying, what the management is going to quote, so it all depends.”
Finally, Jhonsa touched upon employee wage revisions and their potential impact. “So, the employee wage revision is I think about next year. So, it usually takes about a year after that, but the process is long process. The negotiation usually takes about couple of months or couple of quarters basically to completely, as we saw last time also. So definitely, there will be some overhang as of employee wage revision coming in, but then again what Coal India is doing is they are basically moving a lot of people out of the system and that is how they are trying to control the employee cost, but definitely as a percentage of the top line it is expected to increase going forward.”
With two of its biggest subsidiaries on the path to listing, Coal India appears to be poised for significant shareholder value creation, though investors will need to wait for final approvals and valuations to fully assess the impact.
