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>> Resurgere Mines & Minerals
Resurgere Mines & Minerals India IPO Analysis
12 August 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a long term view" recommendation on Resurgere Mines & Minerals India Ltd. IPO, which opens for subscription on August 11 and closes on August 13.
Synopsis
- Resurgere Mines & Minerals India Ltd. (RMMIL) markets mainly lump / size iron ore and calibrated lump ore (CLO). 25% of its sales is derived from exports. It sells most of its ore in the spot market.
- RMMIL has a rather short track record of three years in the iron ore business, with a miniscule market share in the domestic iron ore market. It however has mines with estimated reserves of 74.82mn tonnes, which is a major positive. RMMIL’s production increased by 40% in FY08. In view of the proven reserves, we believe the company can scale up aggressively, going forward. Other positives are: (i) company will have access to 6 nos. of railway rakes during the current year, leading to cost savings on logistics going forward, (ii) proximity of mines to domestic markets and (iii) high ferrous content of its reserves, vis-a-vis Sesa Goa.
- RMMIL currently outsources the entire extraction and processing activities involved in mining activities. Our concerns include short track record in the iron ore business, management bandwidth and revenue visibility.
- We carried out a broad comparison of RMMIL with Sesa Goa and found the former’s IPO slightly expensively at 7.9x FY09E and 6.7x FY10E vis-a-vis Sesa Goa’s 5.9x FY09E and 5.0x FY10E. It is more expensive based even on EV / EBITDA, at 5.4x and 4.5x FY09 and FY10 respectively, vis-a-vis 3.5x and 3.2x for Sesa Goa. We therefore feel investors may subscribe with a long term view.
Market cap of Rs7.7Bn ($196.5mn), based on the cap price.
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