Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Gokul Refoils and Solvent Ltd : IPO Analysis

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Offer Price band Rs 175 – Rs 195
Face Value Rs
Shares Offered 71.58 lakhs
Listing (Stock Exchange) NSE, BSE)
Offer Open Date May 08, 2008
Offer Close Date May 13, 2008

Gokul Refoils and Solvent Ltd (GRSL ) is in the business of Solvent Extraction, refining of Edible oils and Vanaspati manufacturing.
The company has 680 TPD of seed processing, 600 TPD of Solvent Extraction, 1200 TPD of refining and 200 TPD of Vanaspati
manufacturing capacities.GRSL has a cogeneration power plant of 500 KWH at its Gandhidham unit.The manufacturing units are
situated at Sidhpur (Sidhpur unit, North Gujarat), Anjar (Gandhidham unit, Kutch), Navi Pardi (Surat unit, South Gujarat) and Kutch (Wind mills).

Increasing share of retail sales:
The company is making constant efforts to shift its business model in favour of retail sales. Its bulk sales share
has been decreasing over the years and now forms 63% of the total sales.Retail sales have increased from 18% in FY06 to 37% for the eight-month
period ended November 2007. With the increasing focus on retail sales,the overall margins of the company are set to improve significantly.

Strategic location of manufacturing plants: All its plants are strategically located near the source of raw materials to ensure cost savings and for
optimum logistic benefits. It is the only edible oil company in India to be located near the source of raw material thereby ensuring significant
benefits in terms of logistics cost, time savings and no wastage.

Capacity Expansion: The company has been continuously increasing its manufacturing capacities. The refining capacity was increased from 1100
TPD in FY05 to 1200 TPD in FY07 and shall increase to 1500 TPD in FY08. A new Soyabean plant of 1500 TPD is being set up to increase the seed
processing and solvent extraction capacity from 1280 TPD to 2780 TPD.

Flexible manufacturing capabilities: GRSL’s manufacturing facilities can produce a broad variety of oil & derivative products. The existing setup is
such that it can switch over from processing of one type of oil to another type of oil with no down time. Hence, the company is not dependent on
any particular source of raw material, whether imports or local purchases and also in case of failure of a particular type of crop, the company is less
affected as it can refine some other oil or can also import oil as it is near to the ports.

Wide distribution network: GRSL has a well established network spread across 19 states catered by its 18 C&F agents and their 802 distributors,
3 depots, 15 brokers and their 295 resellers, distributing its products through a total 1133 bulk points of presence.

Valuation:
At the upper end of the price band of Rs 195, the issue is available at PE of 8.2x its FY08 (E) EPS of Rs 23.8 and 7.4x at the lower
end of Rs 175, on fully diluted equity capital of Rs 26.4 crores. The company has some inherent strength such as strategic location of plants
and flexible-manufacturing capabilities that can switch over from processing of one type of oil to another type of oil with no down time.

Also, the company is now focusing on increasing its retail sales, which have higher margins, compared to manufacturing. Its competitor Ruchi
Soya is a very large player in terms of size and scale and its brands are also well recognized and accepted in the market place. Gokul Refoils has a
long way to go before it establishes significant scale in a business that is mostly driven by volumes, as the margins at both the operating and PAT
level are quite low.

 

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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