IRALCO
On June 11th 5% of the shares of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Iran’s largest aluminium producing company, IRALCO, were offered on the Tehran Stock Exchange. The IPO was successful with around $11 million of shares being sold, giving IRALCO an overall valuation of $220 million and a PE ratio of 4.8. This is the third successful IPO from the mining and metals sector which seems to be amongst the government’s most profitable assets. The previous two IPO’s were a Copper production company and a Steel production company.
IRALCO is one of only two aluminium producing complexes in the country. There is a solid domestic and export market. The company currently has a production capacity of over 120,000 tons of aluminium ingot and products and has over 50% share of the domestic market. The standard of products, with purities of over 99.7%, meets the requirements of the London Metal Exchange. In the domestic market, the products of the company are sold on the Tehran Metal Exchange with prices closely linked to international aluminium prices. Therefore the level of the company’s earnings is very much linked to global aluminium prices.
In 2001, the company undertook a large expansion plan to add another 110,000 tons to its production capacity for a total investment of around $365 million. The project faced some financing difficulties and was delayed several times. According to the latest reports, the project is two third’s through and its first phase, with a capacity of 25,000 tons, is expected to come on stream by the end of 2007.
Dashtestan Cement
For the first time since the new wave of privatization has begun, the government has offered shares in one of its cement companies on the TSE. Shares of Dashtestan Cement were listed on 15 July and the market gave the company a total valuation of around $83 million and a PE ratio of 7 on the first day of trading. However, this IPO was not as successful as previous offerings. The government was planning to offer 5% of the company on the market but only 1% of the shares were successfully sold. Analysts considered that the initial offering price was too high. The sector as a whole is going through difficult times due to the cement pricing scheme that has been imposed by the government. Even the small number of shares that were sold during the IPO were being sold in early trading. Unless the current pricing scheme is lifted and cement is sold at a free market price, it is not expected that any of the cement companies, including Dashtestan, will experience a significant rise in their share price.
Ø IPOs in the Pipeline
Khuzestan Steel
Another company whose shares will be offered on the market in early August 2007 is Khuzestan Steel Company. This is the second largest steel producing company in Iran after Mobarakeh Steel Complex (MSC). The MSC was successfully listed with a share price rise of over 25% following its IPO. This has made investors and analysts hopeful that this pattern will be repeated with the IPO of Khuzestan Steel.
Khuzestan Steel was able to increase its profitability by 14% over the last Iranian year with only 1% increase in production, showing a solid growth in its profit margin. The company is expected to produce around 4 million tons of steel products in the Iranian year of 1386 (ending March 2008). It should be noted, one of the operational risks of the company is power shortages in its region with occasional black-outs that could hurt its production levels.
The report was prepared by Turquoise.
Turquoise is a boutique investment bank based in Iran with offices in Tehran and London. Turquoise publishes Iran Investment Monthly with the aim of keeping its recipients updated on the latest macroeconomic developments in Iran, providing an in-depth analysis of the Tehran Stock Exchange as well as introducing new financial products and private equity opportunities to potential investors. For more information please visit: www.turquoisepartners.com/iraninvestment
