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Gandhar Oil Refinery India Limited – IPO Note

Gandhar Oil Refinery India Limited IPO Note



Gandhar Oil Refinery (India) Limited is a leading manufacturer of white oils by revenue with a growing focus on the consumer and healthcare end-industries. As of June 30, 2023, the 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. The products are used as ingredients by leading Indian and global companies for the manufacture of end products for the consumer, healthcare, automotive, industrial, power, and tyre and rubber sectors. The white oil market is the fastest-growing segment in the specialty oils sector, and Gandhar is 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 the calendar year 2022. As of June 30, 2023, Gandhar’s products were sold in over 100 countries across the globe. The company catered to over 3,500 customers in FY23, including leading Indian and global companies such as Procter & Gamble (P&G), 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 pro forma consolidated revenue from operations grew at a CAGR of 40.59% between FY21 and FY23, which was one of the highest CAGR among selected specialty oil peers and the second-highest CAGR among selected specialty chemical peers.

Investment Rationale:
Gandhar increasing manufacturing capacity to meet rising volume in the Indian speciality chemicals industry:

  • The white oil segment of the Indian specialty oil market is valued at INR 3915 crores in 2023, projected to reach INR 6330 crores by 2028 with a 9.9% CAGR. The expected volume is 1,236 KT by 2028, up from 782 KT in 2023 at a 9.6% CAGR. Key growth areas include personal care and cosmetics, along with pharmaceuticals.
  • The Indian specialty oil market is estimated at INR 61053 crores in 2023, expected to reach INR 77461 crores by 2028, with a 4.9% CAGR. The projected volume is 5,578 KT in 2023, increasing to 7,098 KT by 2028 at a 4.9% CAGR. Automotive oil holds the largest market share.
  • Gandhar, operating three facilities, plans to increase Taloja Plant’s capacity by 100,000 kL, with 25,000 kL commissioned by October 2022. The funding will come from internal accruals and external borrowings. The company aims to complete the enhancement during FY24. Additionally, INR 277.29 million from Net Proceeds will be used to add 18,840 kL annual production capacity at the Silvassa Plant for automotive oil expansion.

Diverse customer base with increase repeat orders easing revenue concentration:

  • Gandhar has a diversified customer base that comprised 3,558 customers during FY23. The customers 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 in the PHPO division. In the lubricants division, customers include Gulf Oil, Adani Ports and Special Economic Zone, and other users of industrial machines and equipment. In the PIO division, customers include Toshiba Transmission and Distribution Systems (India) and other leading manufacturers of transformers, power distribution, and transmission companies.
  • The percentage of customers placing repeat orders in the quarter ended June 30, FY23, and the Financial Years FY23, FY22, and FY21 was 83.74%, 69.11%, 68.86%, and 66.37%, respectively.

Continue to increase overseas sales by strategically expanding product offerings:

  • Gandhar is actively working towards increasing penetration in existing geographies and exploring potential entry into new markets, leveraging current customer relationships to support global growth.
  • Revenue from overseas sales, calculated based on Pro Forma Consolidated Financial Information, has shown substantial growth. It increased from INR 7,413.61 million or 36.00% in FY21 to INR 21,733.50 million or 53.32% in FY23, at a remarkable CAGR of 71.22%.
  • Additionally, for the quarter ended June 30, FY23, overseas sales amounted to INR 6,905.58 million or 64.57%. The expansion strategy is primarily focused on maximizing the potential of existing customer relationships to increase wallet share across multiple jurisdictions.

Valuation and Outlook: Gandhar Oil is looking to benefit from i. The Indian specialty oil market CAGR of 4.9% to reach INR 77461 crores by 2028, and a volume CAGR of 4.9% too to reach 7,098 KT by 2028. ii. Increasing produc-tion capacity of its Taloja Plant by a total of 100,000 kL and an aggregate annual production capacity of 18,840 kL at the Silvassa Plant specifically for expanding the capacity of automotive oil. iii. Expansion of customers and increase in repeat customer orders. iv. Increase in overseas sales. The company has reported revenues of INR 40,757.24 million which represented a CAGR of 40.6% between F21-FY23 which is one of the highest amongst the peers. Of the total sales overseas sales contributed 53.32% and domestic sales contributing 46.68% in FY23. PHPO and Lubricants business division contributed to 54.96% and 25.03% of total revenues while PIO and Channel partners contributed 9.51% and 10.50% respectively. The company reported EBITDA of INR 3166.2 million which represented a CAGR of 12.9% between FY21-FY23 with an EBITDA margin of 7.8% in FY23. The company’s ROE and ROCE was reported at 32.3% and 41.2% respectively in FY23. The company’s ROE was highest amongst peers in FY23. Strong positioning within the global and domestic white oil space coupled with decent valuations and healthy return ratios along with scope for growth from improving utilisations and capex could result in very healthy topline and bottomline( nearly 1.5-2x) growth for the company, hence we recommend to subscribe to the issue.


Gandhar Oil Refinery India Limited IPO Note 1



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