Gokul Refoils Solvent
Gokul Refoils and Solvent is entering the capital market on 8th May 2008, with a public issue of 71.58 lakh equity shares of Rs.10 each in the band of Rs.175 to Rs.195 per share. Issue size would be of Rs.125 crores to Rs.140 at the lower and upper end of the price bands.
The company is into solvent extraction, refining of edible oils and vanaspati manufacturing and having capacity of 680 TPD of seed processing, 600 TPD of Solvent Extraction, 1,200 TPD of refining and 200 TPD of vanaspati manufacturing, having its units located at three places in Gujarat.
The company is now setting up a 1,500 TPD Soyabean processing plant and expanding capacity of edible oil refinery from 100 TPD to 400 TPD of Surat unit. The company is presently importing 1.50 lakh tonnes of Palm Oil from South East Asia and 1 lakh tonnes of Soyabean Oil from South America and to have better sourcing, it is planning to open a subsidiary in Singapore. All these are estimated to cost about Rs.175 crores which is partly financed by term loan of Rs.38 crores and balance from the proposed IPO.
For FY 07, the total income of the company was at Rs.1,600 crores with PAT of Rs.26 crores on equity capital of Rs.18.50 crores, resulting in an EPS of Rs.14. For FY 06, topline inspite of being at Rs.1,260 crores had a PAT of just Rs.17 crores only.
For 8 months ending 30-11-07, the total income of the company was at Rs.1,350 with PAT of Rs.42 crores. Lately solvent extraction companies have been doing quite well but they have never received well by the market due to which, discounting to the sector has always been poor. Though year 2007 was good for the sector, due to volatility in this market, pressure on margins of the sector was noticed in March 08 quarter.
Ruchi Soya a leader in the sector had total income of Rs.11,000 crores for FY 08 while PAT was at Rs.157 crores, resulting in an EPS of Rs.8.50 on face value of Rs.2 and equity base of Rs.38 crores. However, since the industry is highly working intensive, it has high interest burden of Rs.105 crores for FY 08. Higher the turnover, higher the need of working capital and hence higher finance cost.
Gujarat Ambuja Exports another prominent leader in the sector having over 14 manufacturing units located in four states had total income of Rs.1,800 crores with PAT of Rs.77 crores for FY 08 resulting in an EPS of Rs.5.57 on face value of Rs.2 and on equity base of Rs.28 crores. This company had a less interest burden at Rs.11 crores for FY 08. This is inspite of the fact that cotton yarn division had made an EBIT of just Rs.1.25 crores on total income of Rs.155 crores for FY 08.
Share of Gujarat Ambuja Exports which is infact can be largely compared with this company but having better financials, is ruling at Rs.48, having a PE multiple of about 9 times. Even Ruchi Soya, market leader, has PE of about 11 times.
Gokul Refoils had a sharp rise in its margin for period ending November 07, which needs to be closely monitored on sustainable basis. Annualised EPS of Rs.33 for FY 08 discounts the issue by about 6 times on the upper band and by about 5 times at the lower band.
At the lower end of band issue seems reasonably priced but has some concern at the upper band. In its fund requirement, Rs.60 crore has been estimated for working capital seems to be inadequate. All these do not provide any excitement for the issue due to low market perception. However, on pure fundamentals, investment at the lower end is advised while issue at the upper end of the band may not leave much scope for appreciation.