Company Overview
Gandhar Oil Refinery India Ltd. is a leading manufacturer of white oils by revenue, with a growing focus on the consumer and healthcare industries. As of June 30, 2023, the company’s 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. These products are used as ingredients by leading Indian and global companies in end-user industries such as consumer, healthcare, automotive, industrial, power, tyre, and rubber sectors. The company was India’s largest manufacturer of white oils by revenue in FY23, including domestic and overseas sales, and is one of the top five players globally in terms of market share in CY22. As of June 30, 2023, the company’s products were sold in over 100 countries across the globe. It catered to over 3,500 customers in FY23, including leading Indian and global companies such as Procter & Gamble, 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 the United Arab Emirates. The company currently operates three manufacturing facilities, with two plants in Western India and one in Sharjah, United Arab Emirates, spread across 1,28,454 square meters to cater to domestic and global operations. As of June 30, 2023, the manufacturing facilities’ combined annual production capacity was 522,403 kL.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Investment into Texol by way of a loan for financing the repayment/pre-payment of a loan facility availed by Texol from the Bank of Baroda;
- Capital expenditure through purchase of equipment and civil work required for expansion in capacity of automotive oil at Silvassa Plant;
- Funding working capital requirements;
- General corporate purposes.
Investment Rationale:
Dominant market share in the Indian white oils market, with a focus on consumer and healthcare industries
The global white oil market is oligopolistic, with a few highly active players and the top 10 players accounting for 40-45% market share. Gandhar Oil Refinery was India’s largest manufacturer of white oils by revenue in FY23, including domestic and overseas sales and was one of the top five players globally in terms of market share in CY22. As of June 30, 2023, the company offered a diverse portfolio of over 440 products, primarily across the PHPO, lubricants and PIO divisions. The products form a major component by volume for various consumer and healthcare end-industry products such as cosmetics, skin care products, ointments, over-the-counter and other medicines, lubricants, processing oils and insulating oils. Further, the company has significant overseas business spanning over 100 countries across the Asia-Pacific region (APAC), Europe, Africa and the Americas as of June 30, 2023. In addition to the scale of operations, market share, overseas sales, range of product offerings and diverse manufacturing capabilities, the company differentiate itself from competitors based on a strategic focus on products for the consumer and healthcare end-user industries, which accounted for 30.2% and 7.9%, respectively, of pro forma consolidated revenue from finished goods sold in FY23. With focus on the PHPO business division and consumer and healthcare end-user industries, the company looks well-positioned to continue increasing margins and growing business.
Comprehensive customer and supplier base of leading oil companies along with competitive pricing bodes well for business
The leading consumers and pharma manufacturers prefer a long-term relationship with established suppliers of specialty oils, as spot purchases from distributors are cost inefficient and lead to erosion in margins. The company has developed sticky relationships with customers by offering customized products and addressing their stringent quality requirements. The company has catered to an extensive customer base of 3,529 Indian and global companies during FY23. The customers in the PHPO division include P&G, Unilever, Marico, Emami, Bajaj Consumer Care, Encube, Patanjali Ayurved, Dabur, Amrutanjan Healthcare, Supreme Petrochem and other leading Indian manufacturers of
pharmaceutical products. The customers for the PIO division include Toshiba Transmission and Distribution Systems (India) and other leading manufacturers of transformers and power distribution and transmission companies. Gandhar Oil Refinery has long-standing relationship with several key customers which has helped to maintained high customer loyalty. The company‘s strong customer relationships and certifications obtained by its manufacturing facilities demonstrate the strength of reputation, quality and consistency of products, thereby providing significant competitive advantage over new entrants in the industry. Further, Gandhar Oil Refinery’s business strength lies in its global supplier base, which comprises some of the world’s largest global and Indian oil companies. The company procures most of its raw materials from South Korea and the Gulf Co-operation Council region. The key suppliers in these regions include SK Lubricants, S-Oil, GS Caltex and other global base oil suppliers. Over the years, the company has transitioned to directly purchasing raw materials from base oil suppliers from using intermediaries earlier, resulting in increased efficiency, lower costs and improved credit terms.
Valuation and Outlook:
Gandhar Oil Refinery is a leading manufacturer of white oils by revenue, with a growing focus on the consumer and healthcare industries. The company was India’s largest manufacturer of white oils by revenue in FY23, including domestic and overseas sales, and is one of the top five players globally in terms of market share in CY22. The company operates three strategically located manufacturing facilities, with two plants in Western India and one in Sharjah, UAE which are easily connected to global oil supply routes and major markets. The company has a track record of sustained pro forma consolidated revenue from operations which grew at a CAGR of 49.7% during FY21-23. This was the highest CAGR among selected specialty oil peers and the second-highest CAGR growth among selected specialty chemical peers. The percentage of customers placing repeat orders in the FY23, FY22 and FY21 was 68.9%, 66.4% and 59.3%, respectively, demonstrating customer satisfaction and value of the company’s products. Overall, healthy financial performance, expansion of product portfolio, improvement of return ratios, and growing overseas business are key growth drivers for the company’s performance in the long term. The issue is valued at a P/E of 7.1x on the upper price band based on FY23 earnings, which is fairly valued. We, therefore, recommend an “SUBSCRIBE” rating for the issue.
