Is This the Next Big PSU IPO? Coal India Subsidiary Files DRHP

The initial public offering (IPO) market in India has slowed down recently.

The second half of FY25 saw subdued IPO activity with only 11 IPOs in Q4. This was partly due to the consistent foreign portfolio investor (FPI) sell-off and geopolitical tensions.

However, there is a strong pipeline of companies preparing to go public. The sharp recovery in the Indian stock markets in April and May has helped revive sentiments.

Domestic liquidity is a big reason that is driving the IPO markets in India. Retail investor participation has increased significantly, supported by over 140 million demat accounts and substantial mutual fund inflows.

An IPO that is scheduled in the near future is that of Central Mine Planning & Design Institute (CMPDI). The company has recently filed its Draft Red Herring Prospectus with the regulator.

Here are the details about this IPO.

About Central Mine Planning & Design Institute

This company is a wholly owned subsidiary of Coal India. It operates as a Mini Ratna (Category I) public sector undertaking (PSU).

CMPDI provides comprehensive consultancy and support services across the entire mining lifecycle. This includes coal and mineral exploration, mine planning and design, environmental management, infrastructure engineering, and specialised technology services.

The company is the largest coal and mineral consultancy in India in terms of market share. It's also the preferred consultant for Coal India and other government entities. It operates through seven regional institutes across India.

The company also collaborates with international agencies and has undertaken projects globally, including:

• Consultancy for mining and power projects in Tanzania.
• Feasibility studies on clean coal technology with agencies in Germany and Japan.
• Training programs for countries such as North Korea, Oman, Nigeria, and Tanzania.
• Data generation projects on coal-bed methane with AMOCO India Petroleum Co., USA.

What Makes This IPO Stand Out?

• The IPO is a pure offer-for-sale (OFS). This means there will be no equity dilution that takes place.
• Central Mine Planning & Design Institute is a debt-free company. Thus, it has strong balance sheet with significant cash on the books.
• The company's IPO stands out due to its unique position as India's largest coal and mineral consultancy.
• Central Mine Planning & Design Institute gets regular order inflows from Coal India and the government. Revenues at the moment look guaranteed.
• The IPO and listing will provide operational autonomy to the company. The listing will allow more independent functioning.
• Revenues and profitability of Central Mine Planning & Design Institute have grown over the last few years.

Key Details of the IPO

Thus far the company has filed the draft red herring prospectus.

Some key details like the IPO price band and issue open and closing dates, price band, lot size, allotment date are still awaited.

Here are some details of the offer that is in the public domain.

Type of issue: Offer for sale

Face value: Rs 2 per equity share

Shares on offer: 71 million (m). Coal India will offload about 10% of its holdings in the company.

Coal India will be entitled to the entire proceeds of the offer after deducting its portion of the offer expenses and relevant taxes.

CMPDI will not receive any proceeds from the IPO. The objective of the IPO is to list equity shares on the stock exchanges.

A Look at the Financials

Particulars	FY25	FY24	FY23
Total revenue from operations (Rs m)	21,027.6	17,326.9	13,860.9
Profit for the year (Rs m)	6,669.1	5,032.3	2,966.6
Earnings per equity share of Rs 2 each - diluted	9.3	7.0	4.2
Net asset value per equity share	28.6	22.3	17.1
Total borrowings (Rs)	0.0	0.0	0.0

The company's revenue has grown sharply from Rs 13.86 bn in FY23 to Rs 21.02 bn in FY25. The growth in revenue has been 51% over this 2-year period. Similarly, the net profit has grown from Rs 2.96 b to Rs 6.66 bn, more than doubling in the 2-year period.

Risk Factors

• Central Mine Planning & Design Institute depends upon its top 10 clients for business. These companies contributed to 95%, 95.5%, and 95.8% of its revenues in FY25, FY24, and FY23, respectively. The loss of any of these clients could have an adverse effect on the company's business, financial condition, results of operations, and cash flows.
• A majority of revenues is derived from Coal India and its subsidiaries. Coal India and its subsidiaries accounted for 67.1%, 80.2%, and 82.7% of its revenue from operations in FY25, FY24, and FY23 respectively. This makes Central Mine Planning & Design Institute vulnerable in terms of revenue concentration.
• A significant portion of the company's revenues is derived from geological exploration. Any decline in demand for geological exploration and resource evaluation services could have an adverse impact on the company's business.
• Changes in technology may render current technologies obsolete. The company will have to effectively address such situations, which could adversely affect its business.

Conclusion

Central Mine Planning & Design Institute is a debt free company. Apart from the cash on books it has steady business. It derives most of its business from Coal India and its subsidiaries.

These points are unlikely to change and thus, the revenue stream is assured for the company.

Central Mine Planning & Design Institute enjoys high return ratios, including a return on net worth (RoNW) of 32.7% and EBITDA margins over 30%. The financials of the company are sound.

Over the years the company has made efforts to diversify internationally. However, for the time being, it depends on government business and from Coal India and its subsidiaries.

The important point for investors would be the IPO price at which shares are likely to be offered.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

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