Coal India Offer for Sale (OFS) – January 2015

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

The government is currently struggling to meet its fiscal deficit target of 4.1%. Finance Minister Arun Jaitley, in his budget speech last year, had accepted this target as a challenge. He then set a target to divest Rs. 43,425 crore worth of stake in public sector undertakings (PSUs). To meet its target of divestment proceeds this fiscal year, the government has scheduled an offer for sale (OFS) for Coal India on the stock exchanges today.

The government has decided to offload its 10% stake in the company i.e. offering 63.16 crore shares. At Rs. 358 a share as the floor price and a 5% discount for the retail investors, the government will be able to raise a minimum of Rs. 22,386 crore from this share sale. Currently, the government holds about 89.65% stake in the company.

Before we consider the factors to decide whether we should invest in this OFS or not, let us first check the basic details of this offer.

Shares on Sale – The government has decided to offload 10% stake in Coal India and will place 63,16,36,440 shares in the offer for sale, out of which 20% shares i.e. 12,63,27,288 shares have been reserved for the retail investors investing up to Rs. 2 lakh.

Offer Price – Share price of Coal India closed at Rs. 374.95 on the NSE yesterday. The government has fixed Rs. 358 as the floor price in the OFS, which is a discount of 4.52% to its closing price. The floor price of Rs. 358 was disclosed by the government after market hours yesterday. So, the market will react to this price in the trading hours today.

5% Discount for the Retail Investors – The government has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 360, the retail investors will get it at Rs. 342 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Introduction of Cut-Off price option for retail investors again deferred – Offer for sale (OFS) process is still very complicated for the retail investors. They either require proper guidance or the option to bid at the cut-off price. But, despite of considering it every time a big OFS comes, it has never been introduced so far. I fail to understand the reason for such a delay in introducing the cut-off price option for the retail investors. I think SEBI should introduce it as soon as possible.

Time Period – Coal India OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.

Once bidding starts, you can check the bidding status on the National Stock Exchange as well as on the Bombay Stock Exchange.

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.

Should you invest in Coal India OFS?

Diesel prices form a substantial part of Coal India’s overall cost of production. As a result of sharply falling crude prices, the government has lowered diesel prices a few times in the last 3-4 months and lower diesel prices augur well for the profitability of Coal India. Moreover, the company is expected to have higher realisations in the coming years, which could again boost its profitability.

The government’s focus on doubling its coal production to a billion tonnes by FY20 and also building of three key railway lines in Odisha, Chhattisgarh and Jharkhand by 2017 should also help in improving operational efficiency for the company. Upcoming auction of the coal blocks should also result in higher prices and thereby boosting its profitability.

Say, the government fixes Coal India’s allotment price at Rs. 365 a share and the retail investors get it allotted at a discount of 5% i.e. at Rs. 346.75 a share. So, with Rs. 346.75 as our cost of acquisition per share and an expected EPS of Rs. 25 for FY15, we are buying Coal India shares at 14X its estimated EPS for the current financial year.

If I expect a modest EPS growth of 15% for the next two financial years, its stock trades at 12.1 times FY16 estimated EPS and 10.5 times FY17 estimated EPS. From valuations point of view, I think the stock is attractively valued.

But, the problem lies somewhere else. I think the way all these PSUs get managed, it is highly unprofessional. I think Indian PSUs, including Coal India, are marred by labour problems, operational inefficiencies and poor decision making at the top. The company has not been able to meet its production targets year after year and there is nobody who is ready to take responsibility for the same. There are several sectors, including power and infrastructure, which have suffered a lot due to shortage of coal as a result of low coal production and high import cost.

But, I think there is still some hope left and we should give Coal India and the new government some time to act in the right direction. I think the government is committed enough to act swiftly whenever it faces some kind of headwinds. The recent settlement with the Coal India labour union and then immediately coming out with this OFS is a perfect example of government’s efficiency in this regards.

I think the offer price has been attractively fixed at Rs. 358 a share and a 5% discount to this price leaves a reasonable margin of safety for the retail investors. With the government taking it in the right direction, I expect its stock price to move past Rs. 400 levels very soon.

Book Review: Game of Thrones Series

(There are no spoilers in this review)

A lot of you must have seen the hit TV series – Game of Thrones, and most people who see the TV series absolutely love it. I’m a big fan of the TV series myself, and it is easily the best thing I’ve ever seen on TV.

A lot of my friends who have read the books and watched the TV series tell me that this is one of the rare instances where the TV show is as good as the books so I was never that keen to read the books. That along with the fact that I don’t read a lot of fiction never got me started reading these books.

However, a couple of months ago I had a long plane ride ahead of me and I decided to pick up the third book of the Game of Thrones series, and without doubt, this is the best fiction I have ever read.

Which book to start with if you have watched the TV series?

Since I had watched the television series, and I knew that there are a number of books in this series, I wanted to pick one up that started off where the television series left. In order to do that you have to pick up the third book in the series named – A Storm of Swords, and start reading it somewhere in the middle.

The television series doesn’t follow exactly the same sequence of events as the book so at first it was a little confusing but I skimmed through the parts, which were familiar, and at about 80% of the third book, you come to a point where all events are new.

I was also a little confused as to which book to buy because the TV series is called Game of Thrones with multiple seasons as is common for any TV show.

The series of the books however is called “A Song of Ice and Fire” and within this series there are five published books and two unpublished ones.

Here are the names of the five published books:

  1. Game of Thrones,
  2. Clash of Kings.
  3. A Storm of Swords,
  4. Feast for Crows and
  5. Dance with Dragons.

Game of Thrones Storyline

The storyline of Game of Thrones is set on a planet which has unpredictably long summers and winters, and the period would be the equivalent of the medieval period on earth when there were kings, knights, castles, sieges, and so on. There is an element of magic in the story but not too much.

George RR Martin is the author of this series, and in an interview he said that magic is like salt in a stew, if there is too much salt then that is all you can taste so there has to be a balance and I think that’s a great analogy. At no time does the story become unbelievable or over the top, and most of the time you don’t even think about the magical elements as over the top even though they always have a strong bearing on the story.

What is so great about Game of Thrones?

The great thing about Game of Thrones is the conflict and unpredictability. The storyline is great, and there is nothing predictable about it. There are no heroes in the story, and the leading characters can be killed off any time. There is no clear distinction between good and evil except for a handful of characters, and there is no guarantee that the good characters will live, or even if the bad characters will live. There are plots within plots and secrets within secrets. The storytelling is amazing, and at times, it reminds me of the Mahabharata, which has got some incredible stories as well, and each story leads to another story.

Difference between the TV series and books

The TV show has a lot of nudity and violence, but the books are even more graphic. I think both are optimal in their setting. If the TV series were to follow everything in the book then perhaps it would become too graphic to show on television.

The characters are usually younger in the book, and that’s definitely no doable on television. You don’t want your heroes to actually look 16 years old.

The biggest difference to me however is the pages and pages worth of dialog that the characters have in their mind which tells you who is thinking what. This can’t be shown on television and I feel even though the TV series does a great job of showing character’s motives and thoughts, a lot of things can simply not be captured on television that are the characters are said to think to themselves in the book.

The books are longer of course, the last book is over a thousand pages, and it takes hours to read through it, the TV series is shorter with just ten episodes per season so television in this case is definitely less of a time suck than the book.


If you like reading novels and fiction then this is definitely worth a read for you. These are all very long reads though, and take hours to finish so if you want something quick or can’t spare the hours it requires to complete a book then you can just enjoy the TV show.

IFCI Limited 9.50% NCDs – January 2015 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

IFCI yesterday launched its second public issue of non-convertible debentures (NCDs). The issue carries annual interest rate of 9.50% for 10 years and 9.45% for 5 years, which is 50 basis points lower than its last public issue of October 2014. IFCI plans to raise Rs. 250 crore in this issue with an option to retain oversubscription up to the residual shelf limit of Rs. 790.81 crore.

IFCI has decided to issue these NCDs for a period of 5 years and 10 years only. Last time it had the option of 7 years as well. The company has also decided not to offer the monthly interest payment option this time around. Last time IFCI offered monthly interest payment option with its 5 year maturity period. The issue is scheduled to remain open for over a month to close on February 4th.


Categories of Investors & Allocation Ratio – The investors would be classified in the following four categories and each category will have the following percentage fixed during the allotment process:

Category I – Institutional Investors – 25% of the issue size is reserved

Category II – Domestic Corporates – 25% of the issue size is reserved

Category III – High Networth Individuals including HUFs – 25% of the issue size is reserved

Category IV – Retail Individual Investors including HUFs – 25% of the issue size is reserved

Allotment will be made on a first-come first-served (FCFS) basis.

Coupon Rates for Category I & II Investors – Like last time, IFCI has kept the differential between the coupon rates offered to the individual investors and non-individual investors as 0.10% only. I think this move would again make these NCDs more attractive to the non-individual investors as compared to the retail investors.

NRI Investment Not Allowed – Foreign investors, including foreign nationals and non-resident Indians (NRIs), are not allowed to invest in this issue.

Credit Rating & Nature of NCDs – While Brickwork Ratings has assigned a credit rating of ‘AA-’ to the issue with a ‘Stable’ outlook, ICRA has given it a credit rating of ‘A’ again with a ‘Stable’ outlook. Moreover, these NCDs are ‘Secured’ in nature and in case of any default in payment, the investors will have the right to claim their money against certain receivables of IFCI.

Minimum Investment – These NCDs carry a face value of Rs. 1,000 and one needs to apply for a minimum of 10 NCDs, thus making Rs. 10,000 as the minimum investment to be made.

Maximum Investment – Like the last time, IFCI has kept Rs. 2 lakhs as the maximum amount one can invest in the retail investors category. Individual investors investing more than Rs. 2 lakhs will be categorised as high networth individuals and there is no such cap on the investment amount for such investors.

Allotment in Demat/Physical Form – Investors will have the option to get these NCDs allotted either in demat form or physical form as per their choice.

Listing – These NCDs will get listed on both the stock exchanges, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), within 12 working days from the closing date of the issue.

Taxation & TDS – Interest earned on these NCDs will be taxable as per the tax slab of the investor and tax will be deducted at source if NCDs are taken in physical form and the interest amount exceeds Rs. 5,000 in any of the financial years. However, there will be no TDS on NCDs taken in a demat form.

Moreover, if these NCDs are sold after holding for more than 12 months, the investor is liable to pay long term capital gain (LTCG) tax at a flat rate of 10%. However, if sold prior to the completion of 12 months, short term capital gain (STCG) tax is applicable at the slab rate of the investor.

Interest Payment Date – Again, IFCI has not fixed any date in advance for the purpose of its annual interest payment and that is why its first due interest will be paid exactly one year after the deemed date of allotment.

Interest on Application Money & Refund – IFCI will pay interest to the successful allottees on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment, at the applicable coupon rates. However, unsuccessful allottees will be paid interest @ 4% per annum on their money liable to be refunded.

Premature redemption & Call Option – IFCI will not entertain any request for redemption before the maturity period gets over. Investors will have to sell these NCDs on the stock exchanges to liquidate their investments. IFCI too will not carry any option to call these NCDs for redemption before their maturity.

IFCI NCDs vs. Bank Fixed Deposits vs. Company Fixed Deposit


Should you subscribe to IFCI NCDs?

These were my views when its last issue came in October – “With CPI as well as WPI inflation falling sharply, Brent crude prices declining from $114 per barrel to $84-85 per barrel, commodity prices also correcting substantially and 10-year Indian G-Sec yield falling from 9%+ to 8.39%, I think the interest rates should still head lower going forward. In the present macroeconomic scenario, it makes sense to subscribe to these NCDs. Long term investors in the 30% tax bracket will do well to invest either in debt mutual funds or explore tax-free bonds from the secondary markets.”

Inflation has fallen further, both CPI as well as WPI. Crude prices have also fallen further with Brent crude trading at $57.33 per barrel as I write. Though the 10-year Indian G-Sec yield has also come down sharply to 7.88% from 8.39% earlier, I think the pace of fall should get slowed down now.

Though I think there is still some more room left for the deposit rates to fall, especially the bank deposit rates, I think the rates offered by IFCI this time are less attractive to me as compared to the last time, which is natural as well. If you are able to buy its previous issue’s NCDs from the secondary markets at a relatively reasonable cost, then you should avoid this issue. If you face difficulty in doing so, then you should still subscribe to these NCDs for your medium to long term investment. Long term investors in the 30% tax bracket would still do well to invest either in debt mutual funds or tax free bonds.

Application Form of IFCI NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IFCI NCDs, you can contact me at +919811797407