ACB India – Plant Visit Update

As the secondary markets look promising to India in 2013, the IPO market is also back into action. As many as three medium to big ticket IPOs got listed successfully in January 2013. In such an environment, the Gurgaon based company ACB India is also looking to raise funds for its upcoming 900MW of power generation capacity. The company is waiting for the right time to raise Rs 575 crore IPO, most probably however it is expected within next two months.

We visited its multiple facilities located in Korba, Chhattisgarh. ACB has two business segments namely washery and power generation. Its business model is quite different from other power generation companies; it uses a blend of e-auction coal and coal rejects for the purpose. Reject is a low grade coal that remains after a few washes in the washery. ACB has four coal washeries located in Korba and has a marquee list of clients who are dependent on it for coal beatification. The company buys the coal rejects at a miniscule price of Rs 150-200 per tonne which is then blended with e-auction coal to fuel its current 330 MW of power generation capacity.

Its current generation capacity includes two power plants with a total capacity of 330MW. This includes 270 MW (2units of 135MW each) and 60MW (2 units of 30MW each) of power units. The entire 270MW capacity is commissioned and has PPAs signed with the Gujarat Discom for 200MW. The rest of the electricity will be available for the Chhattisgarh discoms as well as for merchant route. Of the other projects, 30MW is commissioned fully while the rest 30MW is due to be commissioned by December 2013. The PPAs for the first 30MW unit are signed while the rest 30MW will be available for merchant sale.

The company has now proposed to set up a total 900MW of power generation capacity. Of this, 300 MW of capacity is under construction while 600 MW is under planning stage. The company has already infused money (Rs 1,100 crore) in the project and is now looking to raise Rs 575 crore through IPO. With this, it will dilute 12.5 per cent of its equity capital. It is also expected to come out with an offer for sale along with an IPO to comply with SEBI guidelines of minimum public shareholding.

ACB is expected to sign coal linkages and the PPAs for the upcoming 900MW capacity. We believe that the the 270MW of the power project will create reasonable cash flows considering the low cost of coal that it burns. The unique location of the washeries (located very close to the mines of South Eastern Coalfields - Coal India subsidiary) is positive for the company as it saves the transport costs.

The company has a total debt of Rs 1,800 crore and has total equity of Rs 2,100 crore giving a debt to equity ratio below 1x. The pricing of the IPO is not yet available hence it will be too early to recommend whether or not one should subscribe the IPO.