Raj Oil Mills

Raj Oil Mills is entering the capital market on 20^th July 09 with a public issue of 95 lakhs equity shares of Rs. 10 each, in the price band of Rs. 100 to Rs. 120 per share.

The company is marketing Coconut Oil, Groundnut Oil, Soya bean Oil and Cotton Seeds Oil under three umbrella brands of Cocoraj, Guniea and Raj. The company is presently having 5,000 TPA of crushing and 30,000 TPA of Oil filtration. The company now proposes to set up 2 units viz. one at Manor in Maharashtra and second at Bagru in Jaipur and total fund requirement is estimated at Rs. 110 crore, which would largely be met by the proposed issue.

If we see the present operations and scale of the company, these are having a very low tangible value with very low level of operations. Gross block of the fixed assets are less than Rs. 25 crore while major value of the assets are intangibles being three umbrella brands, which were valued at Rs. 293 crore, and process of transfer of these brands to the company are pending, with the Registrar of Trade Marks and are being opposed by the third parties.

Post IPO, the equity of the company would rise to Rs. 36 crore, which is considered very high with the existing listed peers like KS Oils, Ruchi Soya or Gokul Refoils. All these companies have topline in excess of Rs. 2,000 crore annually, with strong brand presence in Oil and Vanaspati. As this company is Mumbai based, we are more familiar with the brands of the company and hence may recognize it more.

For year ending December 08, the total income of the company was at Rs. 321 crore with PAT of Rs. 29.60 crore translating into an EPS of Rs. 11.15 on pre-issue equity of Rs. 26.50 crore. As against this, K.S. Qil had topline of Rs. 3,150 crore with PAT of Rs. 175 crore for FY09 giving an EPS of Rs. 5 on equity base of Rs. 35.63 crore. This share is ruling at Rs. 52 implying a PE multiple of 10 times.

Solvent extraction companies are enjoying very low PE multiple and topline over Rs. 1,000 crore is considered and ideal level to operate and exist. Gokul Refoil has topline of Rs. 2,000 crore plus, Sanwaria Agro Rs. 1,100 crore plus, Ruchi Soya Rs. 12,000 crore plus and Agro Tech at Rs. 1,000 crore plus. So this company, post listing would get placed in middle or lower ring in the sector and would enjoy lower PE multiple.

At Rs.100, the company is being valued at Rs. 360 crore while at upper band, it is being valued at Rs. 432 crore. This exceeds much more than its total assets valuations of the tangibles and intangible. Even on PE basis, it is issued close to a PE multiple of 10 times, considering an average of Rs. 110 per share.

Hence, issue has nothing exciting and many listed peers are available at much better valuations. Fate of this issue would also be on the lines of Mahindra Holidays, where one may be able to see meager gain, which may exist during initial days of listing.