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Austral Coke & Projects IPO Analysis
6 August 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a long term view" recommendation on Austral Coke & Projects Ltd. IPO, which opens for subscription on August 7 and closes on August 13.
Synopsis
- Austral Coke & Projects Ltd. (ACPL) is a LAM Coke manufacturer with a capacity of 0.375mn tpa. Its current manufacturing facilities are located at Bhuj.
- ACPL 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. We believe mines to insulate the company against adverse price trends in coke.
- We believe that ACPL will be able to grow primarily due to robust industry fundamentals (hardening coke prices, reduced supply from China and Australia). We expect revenues and earnings to grow @ 44.8% and 33.1% CAGR respectively, during February 2008 - FY11. While we expect coke prices to cool off after the steep up cycle of the last 2 years, we believe prices overall will remain firm on account of the China factor.
- Gremach Infrastructure Equipment, a group company is into equipment rentals. We note with concern ACPL’s intention to continue the construction equipment rental business, which can lead to a direct conflict of interest.
- Based on our estimates, the IPO is priced at 11.1xFY09 and 7.4xFY10 earnings, which is expensive vis-a-vis industry leader GNCL’s 9.2xFY09 and 6.0xFY10 earnings. On the EV/EBITDA the IPO valuation looks attractive at 9.3x vis-a-vis 12.9x for GNCL. We recommend subscribing only with a long term view.
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