CRISIL assigns 4/5 grade to ACB India's Rs 1000cr IPO

Moneycontrol Bureau

Rating agency CRISIL has assigned an IPO grade of 4/5 (four on five) to coal beneficiation firm ACB India’s forthcoming initial public offer. According to media reports, the company is planning to raise Rs 1000 crore, of which Rs 575 crore will be through fresh issue of shares and the rest through existing shareholders diluting stake. (More details)
CRISIL's 4/5 grade indicates that the fundamentals of the IPO are 'above average' relative to the other listed equity securities in India.
Beneficiation involves process through which minerals are extracted from the ore.
Extract from the CRISIL note on ACB India.
"ACB India enjoys a competitive edge on account of the strategic location of its washeries (in proximity to mines) which lowers transportation costs. This, coupled with access to railway sidings at most of its plants, enables ACB to manage logistics efficiently. Business fundamentals are supported by the regulatory requirement that power plants located more than 1,000 km from the pit head, need to use coal with less than 34% ash content. Around 65% of domestic coal has high ash content which can be beneficiated to reduce the ash content. The grading also factors in ACB’s effective utilisation of coal rejects (reprocessing or blending with raw coal and making them marketable) which has led to superior margins for the company."
The report also mentions the risks associated with the company's projects.
"The grade is constrained by the project-related risks associated with setting up of two power projects, aggregating to 900 MW capacity (ACB's economic interest is 579 MW). These power plants are based on coal linkage from Coal India (CIL) and therefore exposed to fuel-supply risk due to CIL’s inability to increase production and the consequent delay in signing the fuel supply agreement (FSA).. Also, ACB’s beneficiation business is exposed to risk of non-renewal of coal washing contracts."