Gandhar Oil Refinery IPO review (Apply)

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Review By Dilip Davda on November 17, 2023

•    GORL is a leading manufacturer of while oils with over 440 products portfolio. 
•    The company is selling its products under "Divyol" brand. 
•    It has reported growth in its top and bottom lines for the last three fiscals. 
•    Based on annualized FY24 earnings, the issue appears attractively priced. 
•    Investors may lap it up for medium to long-term rewards. 

PREFACE:
The company filed its first DRHP in August 2017 for fresh equity shares issue worth Rs. 195 cr. and an OFS of 600000 shares and the mandate was with SBI Capital Markets Ltd. Due to unfavorable condition of the markets, it withdrew IPO plans and is going afresh with revised set of financial data and the IPO size. This time the mandate is with Nuvama Wealth and ICICI Securities Ltd. for an overall IPO size of Rs.  500+ cr. (as detailed hereunder). The company proved its mettle in the periods reported with growth in the top and bottom lines. 

ABOUT COMPANY:
Gandhar Oil Refinery (India) Ltd. (GORL) is a leading manufacturer of white oils by revenue with a growing focus on the consumer and healthcare end-industries (Source: CRISIL Report). As of June 30, 2023, its product suite comprised over 440 products primarily across the personal care, healthcare and performance oils ("PHPO"), lubricants and process and insulating oils ("PIO") divisions under the "Divyol" brand. 

Its products are used as ingredients by leading Indian and global companies for the manufacture of end products for the consumer, healthcare, automotive, industrial, power and tyre and rubber sectors. The white oil market is the fastest growing segment in the specialty oils sector and the Company is India's largest manufacturer of white oils by revenue in Financial Year 2023, including domestic and overseas sales and is one of the top five players globally in terms of market share in the calendar year 2022 (Source: CRISIL Report). Its pro forma consolidated revenue from operations grew at a CAGR of 40.59% between the Financial Years 2021 and 2023, which according to the CRISIL Report, was one of the highest CAGR among selected specialty oil peers and second highest CAGR among selected specialty chemical peers. 

As of June 30, 2023, GORL's products were sold in over 100 countries across the globe. It catered to over 3,500 customers in the Financial Year 2023, including leading Indian and global companies such as Procter & Gamble ("P&G"), Unilever, Marico, Dabur, Encube, Patanjali Ayurved, Bajaj Consumer Care, Emami and Amrutanjan Healthcare, supported by its global supplier base and manufacturing operations in India and United Arab Emirates. 

As a manufacturer of speciality oils, its products and processes are required to comply with strict standards and other specifications prescribed by customers. It has completed rigorous selection processes for securing business from several of its customers and has been able to maintain high customer loyalty. As of June 30, 2023, it had 444 full-time employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO consisting of fresh equity shares worth Rs. 302 cr. (approx. 17869808 shares at the upper cap) and an Offer for Sale (OFS) of 11756910 shares (worth Rs. 198.69 cr. at the upper cap). Thus the overall IPO size will be of 29626718 shares worth Rs. 500.69 cr. (at the upper cap). It has announced a price band of Rs. 160 - Rs. 169 per share of Rs. 2 each. The issue opens for subscription on November 22, 2023, and will close on November 24, 2023. The minimum application to be made is for 88 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30.27% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity shares issue, it will utilize Rs. 22.71 cr. for investment in Texol, Rs. 27.73 cr. for capex for automotive oil plant, 185.01 cr. for working capital, and the rest for general corporate purposes.  

The company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) are Nuvama Wealth Management Ltd., and ICICI Securities Ltd. while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares of Rs. 6 -  Rs. 38 per share (based on FV of Rs. 2 per share) between March 2004 and September 2014. It has also issued bonus shares in the ratio of 3 for 1 in December 2009. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.66, Rs. 0.69, Rs. 0.82, Rs. 4.56, Rs. 46.00, Rs. 47.33, Rs. 50.00, and Rs. 82.16 per share. 

Post-IPO, GORL's current paid-up equity capital of Rs. 16.00 cr. will stand enhanced to Rs. 19.57 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 1654 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 2242.59 cr. / Rs. 100.32 cr. (FY21), Rs. 3568.96 cr. / Rs. 163.58 cr. (FY22), and Rs. 4101.79 cr. / Rs. 213.18 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 54.28 cr. on a total income of Rs. 1071.52 cr. 

For the last three fiscals, GORL has (on the basis of restated data) reported an average EPS of Rs. 20.11 and an average RoNW of 31.11%. The issue is priced at a P/BV of 1.67 based on its NAV of Rs. 101.35 as of June 30, 2023, and at a P/BV of 1.49 based on its post-IPO NAV of Rs. 113.70 per share (at the upper cap). 

If we attribute annualized FY24 earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 7.62. Thus the IPO appears reasonably priced. 

It has posted PAT margins of 4.47% (FY21), 4.58% (FY22), 5.20% (FY23), and 5.07% (Q1-FY24), while its RoCE margins were 29.37%, 42.10%, 41.19%, and 9.30% respectively for the reported periods. 

DIVIDEND POLICY:
The company declared a dividend of Re. 1 for FY21 (on Rs. 10 FV), Rs. 5.5 for FY22 (on Rs. 2 FV), and Rs. 0.50 for FY23 (on Rs. 2 FV). It has adopted a dividend policy in November 2022 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, GORL has shown Savita Oil, Apar Ind., Panama Petro, Galaxy Surfactants, Privi Speciality, Rossari Bio, and Fairchem Organics as their listed peers. They are trading at a P/E of 13.59, 28.75, 11.76, 43.78, 227.32, 45.36, and 52.61 (As of November 17, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 64 public issues in the past three fiscals, out of which 22 issues closed below the offer price on the listing day.

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