Gandhar Oil Refinery: For long-term bet
The RS 303-cr issue open from Wed and would close on Friday
image for illustrative purpose
Gandhar Oil Refinery (India) Ltd is tapping the capital markets with its issue in a price band of Rs160-169. The issue consists of a fresh issue component of Rs302 crore and an offer for sale of 1.17 crore shares. The issue opened on Wednesday (November 22) and would close on Friday (November 24).
At the time of writing this article which is midway through the issue on the afternoon of second day, the issue is subscribed 12.91 times overall with QIB portion subscribed 3.05 times, HNI portion subscribed 21.03 times and Retail portion subscribed 15.07 times. There are 14.55 lakh applications so far in the issue.
The company is the largest producer of white oils in the country. It has an installed capacity of 5.22 lakh KL over its 3 facilities in Taloja (Maharashtra), Silvassa (Union Territory) and Sharjah (UAE). The company is expanding its capacity further with a 1 lakh KL facility, which would be ready in the next 8-12 months. The current capacity in India of roughly 2.9 KL is 95 per cent utilized, while the one is Sharjah is about 35-40 per cent utilised. The plan going forward is to sweat the facility at Sharjah and ramp up the new capacity in Taloja. The company supplies its products to companies in the personal care, healthcare industry and performance oils.
Gandhar supplies its products to Indian and Global companies from the consumer and healthcare industry which forms about 55 per cent of its total revenues. Export sales are a shade over half and roughly 70 per cent of the export sales are to the APC region. White oil is used in the manufacture of cosmetics, over the counter medicines and ointments.
The companies’ products include white oil, waxes and petroleum jelly which are used in the consumer, healthcare and chemicals and plastics industry. Crude oil prices are highly volatile and the raw material, base oil, is a derivatives of crude oil, making it volatile. To mitigate risk on volatility, the company buys the raw material directly from refineries and has a pass-through mechanism to absorb price volatility with its customers. The industry is expected to grow just under 10 per cent over the five-year period 2023-2028.
In terms of financial performance, the company reported revenues of Rs4,079 crore, an EBITDA of Rs316 crore and a Profit after tax of Rs213 crore for the year ended March 23. The company reported an EPS of Rs23.77 for the year ended March 23. Based on this EPS, the PE for the issue is 6.73-7.11. The PE is indeed attractive and offers scope for appreciation in the short to medium term. For the longer-term, the better utilisation of the Sharjah facility and the ramp up in capacity of Taloja unit by one lakh KL would be the driver for growth.
The other two segments for Gandhar are lubricants which account for 25 per cent of revenues and performance oils, which account for just under 10 per cent of revenues. These are growing as well, but don’t offer the same opportunity as the PHPO segment. The big growth for the company is in the dominant business of personal products and healthcare segments where entry barriers are huge and customers are sticky with vendors. One doesn’t hear of vendors being changed on price and there are long approval and validation processes before a vendor does get approved.
The company compares well with its peers who are in different verticals that Gandhar is present in and not one is present in all the three verticals that the company is into.
It makes investment sense to apply for the company’s shares through the IPO and hope that allotment does happen. The issue price is attractive and offers scope for short to medium-term appreciation. For long-term investors, this becomes a good story with growth coming from capex and capacity expansion.
