IPO Note: Austral Coke & Projects

IPO Note: Austral Coke & Projects
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First Published: Thu, Aug 07 2008. 12 30 PM IST

Updated: Thu, Aug 07 2008. 12 30 PM IST
Issue Opens : 7 August
Issue Closes: 13 August
Issue Size: Rs119 - 142.3 cr
Issue Price: Rs164 - 196
Face Value: Rs10
Retail Portion: At least 35%
Austral Coke & Projects, a Gremach group company, was incorporated in 1994 and is engaged in the manufacture and sale of low ash metallurgical coke (LAM Coke) and refractory in India.
The company is also involved in trading of textiles and rentals of construction and earthmoving machineries to medium/large construction companies.
Currently, the company has LAM Coke capacity of 3,75,000 tonnes per annum (tpa) in Gujarat and targets to become the largest manufacturer of coke in India in the non-ISP category.
The company is all set to increase its coke manufacturing capacity to 5,25,000tpa by FY09. We believe that the capacity expansion coupled with strong demand for metallurgical coke will result in volume growth in the ensuing years.
The company through its subsidiary Astra Mining Limitada, Mozambique, acquired six prospective licenses admeasuring 1,00,000 hectares in Mozambique. This acquisition will provide raw material security to Austral.
Besides this, Gremach Infrastructure, a group company has also bought 75% stake in 11 coal mines in Mozambique to provide raw material security for Austral. However, the plans are at a very nascent stage. Hence, we have not factored the same in our valuations for these mines as of now.
Valuations
On post IPO Equity, considering the P/E and EV/EBITDA valuation parameters, at the higher end of the price band, Austral Coke is available at a discount to its peer, Gujarat NRE Coke (GNCL).
However, it must be noted that GNCL’s valuations include the value of its Australian mining business and hence are at a premium. As for Austral, it has coking coal mining reserves in Mozambique valuations of which cannot be factored in currently owing to lack of clarity.
Thus, considering the execution risks involved in the Mining business, limited upside in coke prices hereon, we believe Austral Coke at the upper price band is fairly valued.
Considering the strong volume growth momentum, firm coke prices in the near term and upsides from any favourable developments on the mining front, we keep a NEUTRAL view on the IPO.
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First Published: Thu, Aug 07 2008. 12 30 PM IST
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