What you must know about Arabian Petroleum IPO?

Arabian Petroleum Ltd was incorporated in the year 2006, to manufacture a wide range of lubricants. These lubricants include specialty oils, coolants, and other such relevant lubricating accessories for automobiles. Its lubricants find application not only in automobiles but also in industrial machines and appliances. The first major vertical of Arabian Petroleum Ltd is the Automotive Lubricants vertical, where the products are sold under the brand name of Arzol. These include 4-stroke engine oil for two-wheelers, motor oils for four-wheelers, diesel engine oils, gear and transmission oils, tractor & transmission oils, pump set oils and hydraulic oils.

The second major business vertical of the company is the Industrial Lubricants where the products a sold under the brand name of SPL. These industrial lubricants help to improve productivity, reduce mechanical wear, prevent system failure, and save on energy costs. Its client roster includes domestic and global clients. Some of the major industries that buy the products of Arabian Petroleum Ltd include pharma, FMCG, chemicals, steel, tyres, power, civil engineering, electrical appliances, telecom, and others; apart from automobiles.

Key terms of the Arabian Petroleum IPO (SME)

Here are some of the highlights of the Arabian Petroleum IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 25th September 2023 and closes for subscription on 27th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the IPO has been fixed at ₹70 per share. Since this is a fixed price issue, there is no price discovery that is left to be done in this IPO.
   
• The IPO of Arabian Petroleum Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Arabian Petroleum Ltd will issue a total of 28,92,000 shares (28.92 lakh shares). At the IPO fixed price of ₹70 per share, the total value of the fresh issue portion aggregates to ₹20.24 crore.
   
• Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. As a result, the total issue size of Arabian Petroleum Ltd will also entail the issue and sale of 28,92,000 shares (28.92 lakh shares). At the fixed IPO price of ₹70 per share, the total size of the IPO of Arabian Petroleum Ltd will be₹20.24 crore overall.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 1,48,000 shares. The market maker for the issue will be Hem Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Hemant Mehta and Manan Mehta. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 73.45%.
   
• The fresh issue funds will be used by the company for meeting its working capital needs and for general corporate expenses. Part of the funds will also be applied towards the cost of the fund raising.
   
• While Hem Securities Ltd will be the lead manager to the issue, Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue will be Hem Securities Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 1,48,000 shares for the market maker for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be distributed between the retail investors and the non-retail investors. The non-retail investors here refer predominantly to the HNI / NII investors. There is no dedicated allocation for the qualified institutional buyers (QIBs) in this IPO. The table below captures the gist of the allocation to various categories

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (2,000 x ₹70 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Arabian Petroleum IPO (SME)

Arabian Petroleum IPO opens on Monday, September 25th, 2023 and closes on Wednesday, September 27th, 2023. The Arabian Petroleum Ltd IPO bid date is from September 25th, 2023 10.00 AM to September 27th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 27th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Arabian Petroleum Ltd

As per the draft red herring prospectus (DRHP) filed by Arabian Petroleum Ltd, the latest annual results that the company has filed with the prospectus are for the full year FY21. That is for the period from April 2020 to March 2021. After that only a couple of quarters of additional data has been provided. Due to the paucity of updated data, it is tough to take a view from a financial perspective. The data of FY21 is too outdated to be meaningful at this juncture.

However, that is not to takeaway from the steady growth in profits till 2021 and the niche it has carved in the lubricants and industrial oils space. This is a space that is likely to grow with the rapid growthy in the automobile industry. For now, the stock looks good on a macro basis, but a micro view would require more updated data on financials.