Gandhar Oil Refinery India Ltd. (Subscribe)

Highlights

Gandhar Oil Refinery India Ltd. (GORIL) is incorporated in 1997, is a widely known name in the world of Speciality Oils. Gandhar is a leading manufacturer of white oils by revenue, engaged in producing Pharmaceutical, Health care, and performance oil (PHPO), Process Insulating Oil (PIO) and Lubricants (automotive oils and industrial oils).

The company is the No. 1 player in India in FY23 and top 5 players globally in CY22. It has 26.5 pct market share in India in white oil in FY23 and 9.6 pct market share globally in white oil in CY22.

It produces a broad variety of speciality oils and lubricants such as (i) White oils, (ii) waxes, (iii) jellies, (iv) automotive oils, (v) industrial oils, (vi) transformer oils and (vii) rubber processing oils. Its products are sold under their flagship brand “Divyol”.

As of June 30, 2023, GORIL products were sold in over 100 countries across the globe. The company catered to over 3,500 customers in the 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 United Arab Emirates.

The company currently operate three manufacturing facilities with a combined annual production capacity of 522,403 kL as of June 30, 2023, with plants located in (i) Taloja, Maharashtra, (ii) Silvassa, the Union Territory of Dadra and Nagar Haveli and Daman and Diu (iii) Sharjah, United Arab Emirates to cater to domestic and overseas demand for its products.

Out of the total proceeds of Rs. 5,006 mn, the company would utilize Rs. 227 mn towards 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. Rs 227 mn would go towards Capital expenditure through purchase of equipment and civil work required for expansion in capacity of automotive oil at Silvassa Plant. Rs. 1,850 mn would utilize towards Funding working capital requirements of the company and Remaining Rs. 1,986 mn would go towards existing selling shareholders.

Key Highlights

• The global specialty oil market value, expected at USD 129.90 bn in 2023, is expected to reach to USD 154.0 bn by 2028, at a CAGR of 3.5 pct. The Indian specialty oil market is estimated to be USD 7.33 bn in 2023 and reach USD 9.30 bn by 2028, at a CAGR of 4.9 pct. White oil is estimated to be the fastest-growing segment over the forecast period, given the favourable outlook for end-user industries amid rising focus on product safety and awareness about health and hygiene, GORIL is well positioned to leverage these benefits.
• Historically, the company also operated a non-coking coal trading business through Gandhar DMCC in addition to its specialty oils business. GORIL made a strategic decision to exit the coal-trading business and focus on the specialty oils business. During the FY22, the company sold such business through a slump sale and divested its shareholding in Gandhar DMCC.
• GORIL is in the process of enhancing the production capacity of its Taloja Plant by an aggregate of 100,000 kL, out of which, they have commissioned an incremental capacity of 25,000 kL in October 2022. This enhancement of capacity is proposed to be funded out of its internal accruals and through external borrowings obtained by the Company. The company expect to complete the enhancement to its production capacity during the FY24.
• For its supply arrangements with key suppliers, pricing is linked to ICIS benchmarks for base oil and certain specified weekly price lists (depending on the quality of base oil being procured) and includes volume-based discounts. The company pricing terms are adjusted on a monthly basis. GORIL estimate its procurement and inventory requirements based on expected sourcing levels, and anticipated demand. This helps them to reduce the risk of commodity price fluctuations and maintain their gross margin spreads.
• The company believes that its customer engagement, relationships and certifications obtained by their manufacturing facilities demonstrate the strength of its reputation, the quality and consistency of its products and the strength of its operations, management and technical capabilities. This provides them with a significant competitive advantage over new entrants in the industry.
• As of FY23 The company has received 54.96 pct of revenue from PHPO segment, 25.03 pct revenue from Lubricants, 9.51 pct of from PIO segment and 10.50 revenue from the channel partners.
• Sales of the company has grown by 40.6 pct CAGR during the period FY21-23 while EBITDA and Profit grew 12.9 pct CAGR and 15.0 pct over the same period. During FY23, company reported sales of Rs. 40,794 mn which increased by 20.3 pct YoY while EBITDA rise by 18.3 pct YoY to Rs. 3,166 mn as EBITDA margin slightly decreased from 7.89 pct in FY22 to 7.76 pct in FY23. Profit in the FY23 stood at Rs. 2,131 mn, which increased by 15.68 pct YoY.

Key Risk

GORIL source most of its base oil, key raw material, from South Korea and the Gulf Co-operation Council region. Any inability to obtain base oil from these countries in the absence of alternative sources may result in delay or cancellation of orders for its products.

Valuation

Gandhar Oil Refinery India Ltd. is a leading manufacturer of while oils with over 440 products portfolio. It has created a niche place for white oil and is among the top 5 players with renowned customers like HUL, P & G, Emami, Marico, Dabur, etc. At the upper end of the price band, the issue is quoting at a PE 7.62x its annualised FY24E earnings. The issue seems to be reasonably priced. One can Subscribe from a longer term perspective.

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