CRISIL has assigned a CRISIL IPO Grade "1/5" (pronounced "one on five") to the proposed initial public offer of Resurgere Mines & Minerals India Limited (RMMIL). This grade indicates that the fundamentals of the issue are poor in relation to other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The offer price for the issue may be higher or lower than the level justified by its fundamentals. The grade is not a recommendation to buy/sell or hold the graded instrument, the graded instrument's future market price, or its suitability for a particular investor.

The grading reflects weak management capability of RMMIL and its present uncertain business model, which is based on its entry into agreements with mine leaseholders on the one hand, and sub-contracting actual mining activity to third parties on the other. The tenability of the business model will be particularly tested when competition in the mining industry intensifies over the next 2-3 years. The company's financial returns are also vulnerable to spot price movements of iron ore, as it sells most of its ore through traders in the spot market.

The company management lacks depth since the key management personnel, with the exception of the Managing Director and whole-time director, have a limited understanding of the business. The limited management capability is also reflected in its significant dependence on third-party consultants for the preparation of business plans and financial projections. The grading also reflects RMMIL's below-average corporate governance structure, especially with respect to management oversight.

About the company and the issue
RMMIL is engaged in the business of extraction and processing of Run of the Mine (RoM) through long-term contracts with leaseholders in Orissa and Jharkhand. The company primarily sells calibrated lump ore (CLO) in the domestic market and exports iron ore fines to China.

Initially, RMMIL was incorporated under the name of Exfin Shipping (India) Private Limited in March 1987. Mr. Subhash Sharma, who took over the company in 2003, started the iron ore business. In 2004, it entered into long-term raising and purchasing contracts with leaseholders in Orissa and Jharkhand for the extraction and processing of iron ore. In 2006, the company was renamed as Resurgere Mines & Minerals India Limited. Prior to acquiring RMMIL, Mr. Subhash Sharma was engaged in bulk pharmaceuticals trade.

Currently, RMMIL does not possess the equipment required for mining. Therefore, it has outsourced its machinery requirement to sub-contractors, while it brings the requisite technical expertise for the extraction of ore. RMMIL purchases the extracted ore (RoM) from the leaseholder, and processes the same into CLO and its byproduct, iron ore fines. It also outsources this sizing process to sub-contractors.

RMMIL aims to raise Rs 1 billion to 1.1 billion by this proposed public issue of 4,200,000 equity shares. To cut down its dependence on third parties for its mining and processing operations, the company plans to use the funds for the purchase of its own machinery for the extraction and beneficiation of iron ore. It also plans to invest in the Wagon Investment Scheme, initiated by the Indian Railways, for the purchase of railway rakes for the movement of iron ore fines.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

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