Subscribe to Gokul Refoils and Solvent's IPO: Angel

Angel Broking has come out with a report on Gokul Refoils and Solvent's IPO. It has recommended investors to subscribe the issue.

The issue has opened for subscription today with its initial public offering (IPO) of 71,58,392 equity shares of face value Rs 10 each. The issue will close on May 13, 2008. The price band has been fixed at Rs 175 to Rs 195 per equity share.

Angel's report on Gokul Refoils and Solvent's IPO:

Gokul Refoils and Solvent’s (GRSL) adaptable manufacturing facility enables it to produce a comprehensive range of edible oil products. The company currently processes various types of oil including palmolein, soyabean, cotton, sunflower, groundnut and mustard. The flexible nature of the existing units enables it to switch over from one type of oil to another with no down time, owing to which it can schedule its manufacturing operations based on market requirements and availability of raw materials at competitive rates. GRSL’s standalone Sales have grown at a healthy CAGR of 39% over the last five financial years. PAT too has grown at an impressive CAGR of 41% over the mentioned period. EBITDA Margins for 8MFY2008 stood at 6.7%.

Valuation:

As per available data, size of the edible oil industry is Rs60,000-65,000cr, which is growing at 6% pa., and with majority of this being in the unorganised segment, opportunity for the organised players is immense. GRSL clocked a strong financial performance growing at a CAGR of 39.3% and 40.3% in Sales and Profits over FY2003-07, respectively. GRSL’s Return Ratios are also among the best in the industry. We believe that GRSL can continue with such a performance as it is also expanding in soya extraction by setting up a 1,500tpd plant. Going ahead, we expect the company’s FY2009 consolidated Revenue to increase to Rs3,010cr on the back of capacity expansion. We expect the company to maintain Margins, although we have not factored in the additional benefits from better Sales Mix towards retail sales and small pouches, which fetches higher Margins. On the lower and upper end of the IPO price band, the stock would quote at 4.6x and 5.1x its post diluted FY2009E Earnings. Considering the industry growth prospects and the company’s past performance, GRSL is attractively valued vis-à-vis its peers. Thus, we recommend a subscribe to the Issue.

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