Subscribe to Austral Coke IPO Keynote

MUMBAI: Keynote Research has recommended ‘subscribing’ to the initial public offering of Austral Coke and Projects with a long term view only. The company has come out with an IPO of 72,60,000 equity shares (excluding green shoe option of 10,89,000 shares) of Rs 10 each, aggregating to Rs 142 crore, it is in the price band of Rs 164-196 per share. The IPO closes on Aug 13.

Austral Coke & Projects, a LAM Coke manufacturer has a capacity of 0.375mn tpa. Its current manufacturing facilities are located at Bhuj.

The company is set to expand coke manufacturing capacity from ...375 mn tpa to 0.525mn tpa and install a power plant of 8 MW. The expansion project, which also includes acquisition of mines, will be funded through the proceeds of the IPO.

Acquisition of coking coal mines in Mozambique can provide raw material
security, once the mines become operational. Keynote believes mines to insulate the company against adverse price trends in coke.

The brokerage believes that ACPL will be able to grow primarily due to robust industry fundamentals (hardening coke prices, reduced supply from China and Australia). Keynote expects revenues and earnings to grow at 44.8 per cent and 33.1 per cent CAGR respectively, during February 2008 - FY11. While they expect coke prices to cool off after steep up cycle of the last two years, the brokerage believes prices overall will remain firm on account of the China factor.

Gremach Infrastructure Equipment, a group company is into equipment rentals. The brokerage notes with concern ACPL’s intention to continue the construction equipment rental business, which can lead to a direct conflict of interest.

Based on Keynote estimates, the IPO is priced at 11.1xFY09 and 7.4xFY10 earnings, which is expensive vis-à-vis industry leader GNCL’s 9.2xFY09 and 6.0xFY10 earnings. On the EV/EBITDA the IPO valuation looks attractive at 9.3x vis-à-vis 12.9x for GNCL