Austral Coke & Projects - IPO Analysis

Promoted by Ratan Lal Tamakhuwala and Rishi Raj Agarwal, Austral Coke & Projects was originally incorporated as NRE Stocknet on 22 April 1994. It got its present name from 14 September 2005. Main activity comprises manufacturing of low ash metallurgical (LAM) coke and refractory, trading of textile and providing rental of construction/ earthmoving machineries to medium/large construction companies.

The objective of Austral Coke’s IPO is to set up a Rs 78.12-crore 1,50,000-tonne per annum LAM coke plant at Sindhudurg in Maharashtra and a Rs 30.77-crore 8-MW captive power plant at Sindhudurg, to acquire coal mines to bag more prospecting mining licenses at a cost of Rs 40 crore, and prepayment of high cost debt amounting to Rs 2.54 crore. The company expects commercial production to start from April 2009. The expanded capacity of LAM coke shall be 5,25,000 tonnes per annum. A LAM coke plant with an initial capacity of 50000 tonnes per annum was started in 2004.

The four primary reporting segments of Austral Coke are: LAM coke, refractory, textile and equipment. Lam coke formed 54.7% of the total revenue at Rs 123.97 crore, refractory 0.4% at Rs 0.84 crore, textiles 18.6% at Rs 42.26 crore, and equipment 26.3% at Rs 59.59 crore in the 11 months of the fiscal year ended March 2008 (FY 2008).

In a pre-IPO placement, Somerset India Fund was issued 27.40 lakh shares at a price of Rs 196 per share totaling Rs 53.70 crore.

Strengths

Can take advantage of the significant gap between the price of imported coke and Indian coke. Coke prices have spurted in recent months owing to increased demand from the downstream steel sector and limited supplies.

Also proposes to convert waste heat generated to power to operate its coke oven plant. Surplus power would be sold.

Weaknesses

Coke is a cyclical business. Currently coke prices are high.

The promoter group has other companies operating in similar line of business and short-term MOUs have been entered with them to allocate activities.

Corporate guarantees of Rs 103.15 crore on behalf of group companies Gremach Infrastructure and Armstrong Infrastructure.

Valuations

At the price band of Rs 164 -Rs 196, the annualised EPS for the 11 months ended February 2008 on post-issue equity (green shoe option not exercised) works out to Rs 13.2 and PE 12.4-14.8, while the annualised EPS for the 11 months ended February 2008 on post-issue equity (green shoe option exercised) works out to Rs 12.7 and PE 12.9-15.4. The largest listed player Gujarat NRE coke is trading at a TTM PE of 16.6.