Austral Coke

Austral Coke & Projects is entering the capital market on 7^th August, 2008 with a public issue of 72.60 lakh equity shares of Rs.10 each, in the price band of Rs.164 to Rs.196 per share. There is a green shoe option of upto 10.89 lakh equity shares.

The company is promoted by father - son duo who are also the promoters of Gremach Infrastructure Equipments & Projects Ltd., which went public on 8^th March 07, and made an IPO of Rs.59 crores, by issuing shares of Rs.10 at Rs.86 per share. This company has shown speculative activity on the bourses with share price having touched a high of Rs.500 in the first week of January 08 and now languishing at Rs.90 with low of Rs.80 made in mid July 08. This is inspite of the fact that the company posted an EPS of Rs.24.50 for FY 08. This translates into a PE multiple of less than 4 and inspite of the fact that the company is into infrastructure equipment hiring business which has good discounting and huge growth potential. But due to concern on the promoter's track record and issues of corporate governance, the share is rightly languishing at this level.

Mr. Ratanlal Tamakhuwala was one of the promoter of Gujarat NRE Coke, but due to family dispute, has disassociated himself in 1997, from the company.

The company is presently into manufacture of LAM Coke and refractory, trading of textile and providing rental of construction/earthmoving machineries. Though the company has its existing coke manufacturing plant in Kutch but nowhere in RHP, the company has bothered to state the installed capacity and its utilization. Even the financial performance for 11 months ending 28-02-08 are not very revealing as revenue break-up of Rs.226 crores into LAM Coke of Rs.124 crores, Textiles Rs.42 crores and Equipments of Rs.60 crores has not defined traded and manufactured. During this period, the company had traded turnover of Rs.102 crores. If we presume textile turnover of Rs.42 crores as traded one, its EBIT was just Rs.17 lakhs. Similarly, Equipment Division had turnover of Rs.60 crores, which also seems to be of trading had an EBIT of Rs.9.45 crores. So, increase in Gross Block during FY 08, of Rs.178 crores, represents increase in Coke unit capacity from 1,25,000 TPA to what level? During FY 06, the company increased its coke capacity form 50,000 TPA to 1,25,000 TPA as also created new unit of Refractory at an outlay of Rs.54 crore. So, why this additional spend of Rs.178 crores in FY 08?

The company has agreement with group companies for similar business of equipment hiring and purchase & sale of coke for management fee, which clearly conflicts with the interests of the company. So what is the necessity to have a separate company for both these business in this company?

The whole structuring of the company's business has been made to enable the company to come out with an IPO. The bottomline of the company was at Rs.9.15 crores for FY 07 which rose to Rs.35.18 crores for 11 months ending 28-02-08. On present equity base of Rs.21.77 crores, even if we assume an EPS of Rs.19 for FY 08, share at the lower band of Rs.164 is issued at a PE multiple of over 9 times. Gujarat NRE Coke, an established player with presence in overseas market is ruling at a PE of close to 9 times, based on its FY 09 earnings. So, in this scenario, when the coke prices are softening having corrected from $ 200 per MT to $ 160 per MT in last one month, what is the rationale of this valuation, that too at the lower band. At the upper band of Rs.196, there are no justification or rationale at all.

The promoters have tasted the public money and by launching this IPO are planning to mobilize about Rs.150 crores, including green shoe option. Considering the track record of the promoters and of the company's performance, it can only be presumed as a speculative issue solely for the benefits of the promoters.

A clear advice is to remain away, if you have fundamental view.