Gandhar Oil Refinery India Limited IPO

About the company:

Leading manufacturer of white oils by revenue with a growing focus on the consumer and healthcare end industries. It manufactures products under the brand name “Divyol”.
Gandhar mainly operates under:

- Personal care, Healthcare, and Performance oils (PHPO)
- Lubricants
- Process & Insulating Oils (PIO)
 
The company has strategically transformed its line of operations from trading non-coking coal to manufacturing and trading specialty oils.
It caters to more than 3500 customers globally in more than 100 countries.
They currently operate with 3 strategically located manufacturing facilities, two plants located in Western India and one plant located in Sharjah, UAE for easy accessibility to global oil supply routes as well as major markets

Objects of the Issue:

- Investment in Texol (Subsidiary) in the form of repayment of a loan availed by it from a Bank (Rs. 22.7 crs);
- Capital expenditure for expansion of automotive oil at Silvassa Plant (Rs. 27.7 Crs);
- Funding working capital requirements (Rs. 185 crs);
- General corporate purposes (Bal).
 

Risks:

- Significant revenues are generated from the PHPO division approximately 54.96%, making the business highly vulnerable to any downturns in the industry.
 
- Concentrated list of Suppliers: The top supplier of raw materials amounts to 20.01% of total purchases and the top 5 suppliers amount to 53.64% any disruptions from the supplier side would affect operations eventually cashflows, and financials of the company.
 
- High dependence on imported raw materials: As of Q1FY24, 72.93% of raw materials are procured from Gulf Countries & South Korea. Any disruptions in the supply chain would affect the operations of the business.

- Requirement to maintain high-quality standards any deviation from it would negatively impact the reputation and business of the company.
 
- Contingent liabilities are to the tune of Rs. 277 crs, if materialized would seriously affect the financials of the company.

Strengths:

- Diverse product portfolio: More than 440 products across PHPO, Lubricants, and PIO divisions.

- Extensive and diversified customer base ranging from P&G, Unilever, Gulf Oil, etc. Repeat orders are at 83.74% as of Q1FY24 indicating the company's ability to retain such highly valued customers.
 
- A lower concentration of customers helps to mitigate the risk arising from the default of any one customer. The top 5 customers just form 13.54% and the top 10 form 19.21% of total revenues.

- An experienced and qualified management team at the top level has resulted in the consistent strengthening of the financials.

Financial Snapshot (Rs. In Crores):

Revenues for the period Q1FY24 stood at Rs. 1,070 crs, EBITDA – Rs. 84 crs, EBITDA Margin – 7.85%, PAT with Rs. 54 crs and PAT Margin 5.07%.
 

Conclusion:

Global companies are diversifying their supply chains away from China, favoring other Asian nations. This shift presents opportunities for India. Government initiatives like PLI schemes and measures taken to control inflation further boost prospects for Indian businesses, fostering growth amid this changing global landscape.

White oil is in demand due to growth in pharmaceuticals and personal care, while transformer oil sees an increased need in the transmission industry. Industrial oil is boosted due to focusing more on domestic manufacturing, and automotive oil benefits from growing transportation needs, rising incomes, and better road infrastructure. These factors collectively drive demand for specialty oils in various sectors.
Its listed peers at similar levels of revenue from operations namely Savita Oil Technologies, Panama Petrochem, and Galaxy Surfactants are trading at 10.84x, 7.96x, 24.16x, and Gandhar is expected to trade at ~7.11x. Further, ROCE stood at 23.02%, 34.42%, 25.59%, and Gandhar at 41.19%. RoNW – 16.68%, 27.08%, 22.04 %, and Gandhar at 32.28% as of FY2023.

Considering the company's financial performance, valuations, and future outlook, the valuations seem to be fairly priced.
 
So, we suggest our investors to “Subscribe” this IPO.