What you need to know about Gandhar Oil Refineries IPO?

Gandhar Oil Refinery India Ltd is a known name in the world of Speciality Oils. The company is a leading manufacturer of white oils by revenue with a growing focus on the consumer and healthcare end-industries. Gandhar Oil Refinery India Ltd has a diversified customer base comprising of over 3,558 B2B customers during fiscal 2023. The company produces a broad variety of speciality oils and lubricants such as White oils, waxes, jellies, automotive oils, industrial oils, transformer oils and rubber processing oils. Divyol is the brand under which most of its specialty oils are sold. Gandhar Oil Refinery India Ltd is more than 30 years old and the scale has gone up sharply in the last 3 years. The company began its journey with the Taloja Plant in 1994. It subsequently set up the Silvassa Plant in 2000 and set up Texol with a partner in 2017, to expand into UAE. This company later became a subsidiary of Gandhar Oil Refinery India Ltd  in the year 2023.

Some of its key products include PHPO (personal care, health care and performance oils), PIO (process insulating oil), Industrial and automotive lubricants. The company manufacturers lubricant oils for Gulf Lubricants, Adani Ports and SEZ, Toshiba Transmission, Marico, Dabur, Encube etc. The company has a diversified client base. The company currently has 26.5% market share of the Indian oil industry and it has 7.6% of the global market share, putting it among the top 5 players globally. The net proceeds from the IPO fresh issue portion will be utilized for investing in Texol by way of loan to refinance repayment to Bank of Baroda, capex for purchase of equipment, automotive oil capacity expansion, expansion of the oil and jelly facility at Taloja etc. The OFS portion is being offered by the promoters shareholders as well as some of the investor shareholders. The IPO will be lead managed by Nuvama Wealth Management and ICICI Securities Ltd. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of Gandhar Oil Refinery India Ltd

Here are some of the key highlights to the public issue of Gandhar Oil Refinery India IPO.

• Gandhar Oil Refinery India Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the band of ₹160 to ₹169 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Gandhar Oil Refinery India Ltd will be a combination of a fresh issue and an offer for sale (OFS). As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• Let us start with the fresh issue portion first. The fresh issue portion of Gandhar Oil Refinery India Ltd IPO comprises the issue of 1,78,69,822 shares (178.70 lakh shares approximately), which at the upper price band of ₹169 per share will translate into fresh issue size of ₹302 crore.
   
• The offer for sale (OFS) portion of the IPO of Gandhar Oil Refinery India Ltd comprises the sale of 1,17,56,910 shares (117.57 lakh shares), which at the upper price band of ₹169 per share will translate into an offer for sale (OFS) size of ₹198.69 crore.
   
• The OFS selling will be by the promoter shareholders of the company as well as some of the early investor shareholder. Out of the offer for sale of 117.57 lakh shares in the OFS, the promoter shareholders will offer 67.50 lakh shares, while the balance shares will be offered by the investor shareholders.
   
• Therefore, the overall IPO of Gandhar Oil Refinery India Ltd will comprise of the issue and sale of 2,96,26,732 shares (296.27 crore shares approximately), which at the upper price band of ₹169 per share will translate into total IPO issue size of ₹500.69 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. The entire OFS is being offered by the government of India.

Promoter holdings and investor quota allocation quota

Currently the promoters hold 87.50% stake in the company, which will get diluted post the IPO due to the impact of the fresh issue as well as to the tune of the FPI selling their shares in the company via the OFS. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Gandhar Oil Refinery India Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota. Employees may get a discount to the IPO price, but that would be communicated separately in the application forms. The anchor portion, will be carved out of the QIB portion.

Lot sizes for investing in the IPO of Gandhar Oil Refinery India Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Gandhar Oil Refinery India Ltd, the minimum lot size is 88 shares with upper band indicative value of ₹14,872. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Gandhar Oil Refinery India Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Gandhar Oil Refinery India Ltd IPO and how to apply?

The issue opens for subscription on 22nd November 2023 and closes for subscription on 24th November 2023 (both days inclusive). The basis of allotment will be finalized on 30th November 2023 and the refunds will be initiated on 01st December 2023. In addition, the demat credits are expected to happen on 04th December 2023 and the stock will list on 05th December 2023 on the NSE and the BSE. Gandhar Oil Refinery India Ltd will be special for more than one reason. It will test the appetite for financial stocks general and for PSU divestment in a financial institution after a very long time. Let us now turn to the more practical issue of how to apply for the IPO of Gandhar Oil Refinery India Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Gandhar Oil Refinery India Ltd

The table below captures the key financials of Gandhar Oil Refinery India Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Gandhar Oil Refinery India Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been extremely erratic. That is evident from the sharp fall in the revenue pool of Gandhar Oil Refinery India Ltd in the latest financial year. As a result, even the net profits have been extremely erratic.
    
2. Let us turn to the margins. The net profit margin or PAT margins are at around 5%, despite the sharp fall in the profits. However, it would be best to wait for the numbers of the company to stabilize.
    
3. The company has had below average sweating assets, but that is again due to the sharp fall in the revenues. However, this does raise concerns over whether the company can sustain high levels of ROE to justify valuations.

The Valuations are in single digit, but the erratic sales and profit numbers may be the concern. Investors are advised to be cautious and wait for the numbers to stabilize.