IPO: Gandhar Oil Refinery

Gandhar Oil Refinery, a specialty oil manufacturer, will launch its IPO (initial public offering) this week. Below is a breakdown of the company's strengths, weaknesses and growth prospects to help investors make an informed decision. In a nutshell Quality : Its three-year average ROE and ROCE are 30 and 32 per cent, respectively. It also reported positive cash flow from operations in the last three financial years. Growth : Revenue and net profit have grown annually by 36 and 38 per cent, respectively, over the last three years. Valuation : The stock is valued at a P/E and P/B of 9.4 and 1.5 times, respectively, compared to its peers' median P/E and average P/B of 29 and 4.6 times, respectively. Overview : The company is the largest player in white oil manufacturing in India. It is also among the major players in India's speciality oil sector. Gandhar Oil is comfortably positioned to take advantage of the increasing demands of the Indian economy, which is highly dependent on specialty oils in products from personal care to industrial usage. Around 40 per cent of the total issue is an offer for sale, 37 per cent is intended to meet working capital expenses, and the remaining is for capex and corporate expenses. About Gandhar Oil Refinery Gandhar Oil Refinery is a specialty oils manufacturer. It primarily focuses on white oils, which accounted for 64 per cent of its FY23 revenue. Also, it commands a substantial market share of 27 per cent in India. With a comprehensive product lineup featuring over 440 offerings, ranging from personal care, healthcare, performance oils, lubricants and process and insulating oils under its brand 'Divyol', the company caters to a broad spectrum of industries such as automotive, industrial power, tire and rubber, as well as personal and healthcare sectors. Strengths of Gandhar Oil Refinery A leading player in white oil: Gandhar Oil is India's biggest white oil supplier, with a 27 per cent market share. Globally, it has a global market share of around 10 per cent. High growth prospects : Specialty oils such as white oil, petroleum jelly, automotive oil, industrial oil, transformer oil and rubber processing oil are used across various industries. Given that these products will always be in demand, being a leading manufacturer in the specialty oil industry is a strong positive for Gandhar Oil. Weaknesses of Gandhar Oil Refinery Dependent on Brent crude : Specialty oils are highly reliant on base oils derived from Brent crude; hence, Brent crude's price volatility will directly impact Gandhar Oil's margins. Highly concentrated in supply: In FY23, the top 10 specialty oil suppliers accounted for 74 per cent of the total raw material requirement. Further, South Korea and the Gulf Cooperation Council (GCC) provided more than 60 per cent of the raw materials supply during the same period. Therefore, any macroeconomic events affecting these regions and suppliers will adversely impact Gandhar Oil's operations. High working capital requirements : In FY23, the company reported a working capital cycle of 31 days. This trend is increasing year-over-year, from 19 days in FY21 to 46 days in the quarter ending June 23. High promoter remuneration : Gandhar Oil's promoters, Ramesh Parekh, Samir Parekh, and Aslesh Parekh, received over 7 per cent of profit after tax as their remuneration in FY 23. IPO details Total IPO size (Rs cr) 500.7 Offer for sale (Rs cr) 198.7 Fresh issue (Rs cr) 302 Price band (Rs) 160-169 Subscription dates Nov 22 to Nov 24, 2023 Purpose of issue Offer for sale, working capital requirements, capex for Silvassa plant, repaym