IPO of 7.2mn equity shares of Rs 10 each, aggregating to Rs140Cr or $34mn (at the cap price)

Transcription

1 K E Y N O T E I P O A N A L Y S I S Gokul Refoils and Solvent Ltd. Price Band : Rs per share May 8, 2008 Issue open between : May 8-13, 2008 Recommendation : Subscribe with a medium term view Book Running Lead Managers : Anand Rathi, Intensive Fiscal To list on : NSE & BSE IPO Grading : 3 / 5 (ICRA) Market Cap post-listing : Rs514Cr or $123mn (based on the cap price) IPO of 7.2mn equity shares of Rs 10 each, aggregating to Rs140Cr or $34mn (at the cap price) Shareholding Pattern Shareholder Categories Pre-issue Post-issue No. of shares % Holding No. of shares % Holding Promoters 14,904, % 14,904, % Promoter Group 3,498, % 3,498, % Non Promoter Group 10, % 10, % Employees 0 0.0% 75, % QIB excl. Mutual Funds 808, % 4,172, % Mutual Funds 0 0.0% 177, % Non-Institutional Investors 0 0.0% 1,062, % Public 0 0.0% 2,479, % Total 19,220, % 26,379, % Recommendation - Subscribe with a medium term view Gokul Refoils and Solvent Ltd. (GRSL) is an Ahmedabad-based oilseed processing, edible oil refining and vanaspati manufacturing company. GRSL is into processing of Mustard seed as well as Soyabean seed and refined oil for various seeds which it procures from domestic as well as export markets. It caters to the northern region markets in India as well as international markets such as US, Europe, South Asia, etc. Going forward; it plans to introduce new seeds for processing. Top line and bottom line CAGR of 46.5% and 44.1% respectively during FY For the period upto November 30, 2007, branded sales comprised 37% of total sales. EBITDA margin which stood at 6.5%, is likely to expand to 6.9%, post proposed capex of Rs15Cr for brand building. GRSL is in a highly capital-intensive business. The company has planned capex of Rs51Cr to set up a soya processing plant at Gandhidham. This will serve as a backward integration helping it to run the refining plants at full capacity utilizations levels. It will also help it export de-oiled cakes, due to the proximity to the Kandla port, leading to saving logistics cost. Pre-IPO allotment to various investors including Rs185 per share which is at a 5% discount to the cap price for the IPO. Shares issued to Rs150 in October The pricing of the IPO - at 9.2xFY08E and 6.8xFY09E - is largely in line with that of peers Ruchi Soya which trades at 11.9xFY08, GAEL at 9.0xFY08 and K S Oils at 9.2xFY08E. We recommend subscribing with a medium term view. Company and Promoter Background GRSL was incorporated in 1992 and converted into public limited company in It is promoted by Mr. Balvantsinh Rajput, Mr. Kanubhai Thakkar, Mrs. Bhikhiben Rajput and Mrs. Manjulaben Thakkar who have 2 decades of experience in this industry. Elizabeth L. John, Analyst (elizabeth@keynoteindia.net) Keynote Capitals Research ( ) Nitin A. Khandkar, Head - Research (nitin@keynoteindia.net) Keynote Capitals Research is also available on Bloomberg KNTE <GO>

2 Gokul Refoils and Solvent Ltd. Oilseed Processing and Refining Industry India is the 5 th largest producer of oilseeds in the world. It contributes 8-10% of the world oilseed production. India accounts for approx. 6% of world s production of edible oils. India is one of the largest consumer importers of edible oil in the world, next only to China and US. India s annual consumption of edible oil is 10mn tonnes. However, India s per capita consumption at 10.2Kgs p.a. is considerably lower compared to global standards. Thus, substantial potential exists for increase in demand for edible oils in future. Due to changing consumer habits, more and more consumers are shifting to refined oil. By FY10, India s total requirement of edible oils for projected population of 1.25bn at projected per capita consumption is about 15Kgs p.a. The expectation of the fall in oilseed production in the Rabi season of coupled with the tightening of the supply in the global markets had caused the spike in prices of edible oil in India. However, the tight demand supply situation and diversion towards bio diesel have also led to flared up prices. As a result, the global edible oil prices are likely to firm up further. Business Description GRSL is involved in seed processing, solvent extraction, oil refining, soyabean oil, vanaspati ghee, castor oil and its derivatives, power generation, commodity trading in domestic and international markets. Edible oil processing consists of three operations: 1. crushing and expelling (separating oil from the solids), 2. solvent extraction (to chemically remove residual oil from the oilcake solids), and 3. oil refining Seed processing and Solvent Extraction It procures Mustard seed from the mandis in the domestic markets. It has agents who carry out quality checks at the mandis itself and accordingly, procure the seeds. Going forward, it will also procure Soyabean seed for processing. Manufacturing Process for Mustard Seed Mustard Seed Seed Processing Solvent Extraction Crude Oil - 40% De-oiled Cakes - 60% Export Market Refined Mustard Oil Domestic Market 2 Keynote Capitals Research

3 K E Y N O T E Manufacturing Process for Soyabean Seed Soyabean Seed Seed Processing Crude Oil 18% De-oiled Cakes 82% Export Market Refined Soyabean Oil Domestic Market Refining of Crude Edible oil It purchases crude oil from domestic as well as international markets and refines it and sells in domestic markets. It refines Mustard oil, Soyabean oil, Sunflower oil, Groundnut oil, Cottonseed oil and Palm oil. Hydrogenation of oil The hydrogenation of oil is done to manufacture Vanaspati ghee. Captive power generation plant It has 4 wind turbines of 1.25 MW and 500 KWH of co-generation power plant largely for captive consumption of power. Plant Locations Sidhpur (Gujarat) Facility Seed processing Solvent extraction Oil refining Tin cans manufacturing Capacity 680 tpd 600 tpd 200 tpd cans per day Anjar (Gandhidham) Facility Oil refining Vanaspati manufacturing Tin cans manufacturing Capacity 900 tpd 200 tpd cans per day Navi Pardi (Surat) Facility Oil refining Capacity 100 tpd Keynote Capitals Research 3

4 Gokul Refoils and Solvent Ltd. Installed capacity (tpa) and Utilization levels Subsidiaries It has set-up two wholly owned subsidiaries. Maurigo International limited, based in Mauritius, is engaged in commodity trade in Chicago Board of Trade (CBOT). Maurigo Pte Ltd. based in Singapore is engaged in procuring raw materials and trading in Edible / non edible oils and de-oiled cake in Singapore. Revenue Mix (Nov-07) Markets Served (Nov-07) Competitive Strengths Management has 2 decades of experience in this industry. Integrated manufacturing facility spanning seed processing to refinery facilities. Versatile manufacturing facilities that gives extreme flexibility to manufacture all types of oils. Manufacturing plants are strategically located which helps in procurement of raw material as well as in serving domestic markets. Also, Gandhidham location is close to Kandla port which helps it to import crude oil and export de-oiled cakes. 4 Keynote Capitals Research

5 K E Y N O T E It has a wide product range offering Mustard oil, Sunflower oil, Groundnut oil, Cottonseed oil, Palmolein oil, Vanaspati oil and Soyabean oil. Optimum capacity utilization of seed processing: 79.12%, oil refining: 73.85%, cake extraction: 66.20% and Vanaspati: 65.81%. It has a wide spread distribution network with 1133 bulk point presence. Objects of the issue Particulars Amount Setting up a 1500 tpd Soyabean processing plant near Gandhidham Expansion of existing edible oil refinery at Surat from 100 tpd to 400 tpd Further investment in wholly-owned subsidiary in Singapore Funding part of long term working capital Brand building Investment in increasing warehousing capacities and Capex for existing units Proposed Expansion Gandhidham The Gandhidham unit is currently into refining of palm & soyabean oil and vanaspati manufacturing. For backward integration, it has set up a Soyabean processing plant with crushing, refining and extraction facilities. The output of the new plant i.e. soyabean oil will be an input for the existing refinery, thereby increasing the overall capacity utilizations of the refinery during the season, wherein imports of oil are not economically viable vis-à-vis purchase of local oil. De-oiled cakes will be fully exported and as this location is close by to Kandla port, it will help save on logistics cost. Surat Edible oil refining capacity at Surat will be expanded from 100 tpd to 400 tpd. It intends to import oil through Dahej port or Hajira Port and process it at Surat, so as to cater to south Gujarat and Mumbai markets. The expansion plan is already under implementation. Means of Finance The fund requirements would be met from IPO proceeds, debt of Rs38Cr and internal accruals. Strategy Backward integration by setting up Soyabean Solvent Extraction plant at Gandhidham unit. The output of the Solvent Extraction plant shall form part of the input of the existing refining unit at Gandhidham. Increasing branded sales, going forward. For this, it shall engage more C&F agents to increase product visibility. Branded sales have 3-4% higher margins as compared to bulk sales. Investment in foreign subsidiaries in Singapore & Mauritius that would be engaged in procurement of raw material and trading of commodity & hedging of commodity. Increasing product range by introducing new products. Keynote Capitals Research 5

6 Gokul Refoils and Solvent Ltd. Investment Concerns Any fluctuations in raw materials prices or decrease in availability of raw materials would adversely affect the business operations. Any changes in import duty structure might effect the business operations, since it depends on imports also. Crude Palm oil is being imported for refining purposes. One of the promoter group entity, viz. Gokul Overseas has a similar line of business and may possibly compete with GRSL. Huge geographic concentration in the north and north eastern region Limited exposure to branded sales exposes GRSL to competition from unorganized players. Gokul brand is not registered. It has filed an application for the same. Reported negative cash flows from operating activities since FY04 till date. It exports to US, Europe, South Asia and other countries. Exchange rate fluctuations may impact profitability. Keynote Capitals s estimates Particulars FY08E FY09E FY10E Net Sales Net Profit EBTIDA margin 6.7% 6.9% 7.5% EPS (Rs) P/e (x) Peer Valuation Ruchi Soya K S Oils Guj. Ambuja GRSL Exports EPS 08E (Rs) EPS 09E (Rs) N.A P/e 08E (x) P/e 09E (x) N.A. 6.8 Consensus earnings estimates Peer comparison Ruchi K S Oil Guj. Ambuja GRSL Agro Tech Soya Exports Foods Net Sales Net Profit Paid-up Equity Capital # Price (as on ) Market Cap EPS (Rs) Book Value (Rs) P/E (x) P/B (x) P/S (x) EBITDA margin 3.7% 11.0% 8.5% 6.5% 2.1% NPM 1.4% 6.0% 4.2% 3.2% 1.6% 52 Week High (Rs) Week Low (Rs) FVPS (Rs) # post issue equity capital FY07 numbers for Agro Tech Foods, Nov-07 numbers for GRSL, rest are FY08 numbers 6 Keynote Capitals Research

7 K E Y N O T E Consolidated Profit & Loss Statements For period ended Manufactured Sales Traded sales Total Sales Expenditure Raw Materials Manufacturing Expenses Employee Expenses Administrative & Other Expenses Selling & Distribution Expenses Total Expenditure EBITDA Other Income Financial Charges PBDT Depreciation & Amortization PBT Current Tax Earlier Years Deferred Tax PAT before adj Adjustments PAT after adj EBITDA margins 4.1% 3.0% 2.1% 3.8% 6.5% NPM 2.8% 1.8% 1.0% 1.6% 3.2% EPS(Rs) Book Value (Rs) Consolidated Balance Sheets As at, Sources of funds Share Capital Reserve & Surplus Total Shareholders funds Secured Loans Unsecured Loans Total Debt Total Liabilities Application of funds Gross Block Less: Acc. Depreciation Net Fixed Assets Capital Work In Progress Investments Curr. Assets, Loans and Adv. Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Total Current Assets Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Liability Total Assets Keynote Capitals Research 7

8 Gokul Refoils and Solvent Ltd. Keynote Capitals Ltd. Member Stock Exchange, Mumbai (INB ) National Stock Exchange of India Ltd. (INB ) Over the Counter Exchange of India Ltd. (INB ) Central Depository Services Ltd. (IN-DP-CDSL ) Registered Office 4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai Tel Nos Ratings structure Subscribe & Hold : subscribe for listing gains, hold for further appreciation Subscribe for listing gains : expect decent appreciation on listing Subscribe with a medium term view : stock can deliver only over 6-8 months after listing Subscribe with a long term view : value can only be realised over months Await listing : good fundamentals; consider valuations on listing Disclaimer This report has been prepared and issued by Keynote Capitals Ltd, based solely on public information and sources believed to be reliable. Neither the information nor any opinion, expressed herein, constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities. Directors, officers, clients or employees of Keynote Capitals or its affiliates may have positions in securities covered in this report or in related investments. Keynote Capitals Ltd may also have proprietary trading positions in securities covered in this report or in related investments. An affiliate of Keynote Capitals Ltd. may also perform or seek to perform broking, investment banking and other banking services for the company under coverage. Opinions presented herein are liable to change without notice. While due care has been taken in the preparation of this report, Keynote Capitals Ltd. or any of its directors, officers or employees shall not in any way be responsible for any loss arising from the use thereof. Investors are advised to apply their own judgment before acting on the contents of this report. 8 Keynote Capitals Research