Crisil assigns grade 4/5 to ACB's forthcoming IPO

Rating agency Crisil has assigned grade 4/5 to proposed in ital public offer (IPO) of the coal washeries operator ACB (India) indicating "above average" fundamentals of the share sale.

"Crisil has assigned a Crisil IPO Grade "4/5" to the proposed initial public offer (IPO) of ACB (India) Ltd (ACB). This grade indicates that the fundamentals of the IPO are 'above average' relative to the other listed equity securities in India," the agency said in a statement.

However, Crisil said this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals.

ACB India is planning to raise up to Rs 1,000 crore through initial public issue and offer for sale (OFS) routes in this fiscal.

The company has filed the draft red herring prospectus with the Securities and Exchange Board of India (Sebi).

Industry sources said ACB India is likely to raise Rs 575 crore through primary issue and sub shares and may also make an offer-for-sale for approximately 12.5% of the existing capital of the company.

"The grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument�s future market price or its suitability for a particular investor," the statement said.

It added that the grade factors in ACB�s position as a leading player in the coal beneficiation industry with a market share of more than 47%.

The company is largely present in the coal bearing states of Chhattisgarh and Orissa.

"It enjoys a competitive edge due to the strategic location of its washeries (in proximity to mines), leading to lower transportation costs. This, coupled with access to railway sidings at most of its plants, enables ACB to manage logistics efficiently," CRISIL said.

Business fundamentals are supported by a regulatory requirement that power plants located more than 1,000 km from the pit head need to use washed coal having ash content of less than 34%. Around 65% of domestic coal has high ash content which can be beneficiated.

"The grade 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," CRISIL said.

ACB ventured into power generation to use coal rejects as fuel � it currently has 350 MW of generation capacity using coal rejects. Since the cost of rejects is lower than that of raw coal, power generation costs are lowered.

The grade is, however, constrained by the project-related risks associated with setting up of two power projects aggregating to 900 MW capacity, it said.