Gandhar Oil Refinery India IPO: 10 key risk factors you should know before investing

The initial public offering (IPO) of Gandhar Oil Refinery India will open for subscription today and remain open until November 24. The company aims to raise ₹302 crore via the issuance of fresh equity shares, whereas existing shareholders and promoters will offload 11,756,910 shares, aggregating to ₹198.69 crore. The total size of the IPO was ₹500.69 crore.

The price band for the offer has been fixed at ₹160–169 per equity share with a face value of ₹02 each. The quota for retail investors in the Gandhar Oil Refinery India IPO has been fixed at 35% of the net offer. The QIB quota is fixed at 50%, while the quota for NII is reserved at 15%.

Gandhar Oil Refinery India is a leading manufacturer of white oils by revenue in the financial year 2023, including domestic and overseas sales, and is one of the top five players globally in terms of market share in the calendar year 2022.

The company products are used as ingredients by leading Indian and global companies for the manufacture of end products for the consumer, healthcare, automotive, industrial, power, tyre, and rubber sectors. As of June 30, 2023, the company's products were sold in over 100 countries across the globe.

It catered to over 3,500 customers in the financial year 2023, 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.

Domestic brokerage firms have recommended a 'Subscribe' rating to the IPO. However, the following are some of the key risks outlined by the company in its RHP report:

Promoter involvement in regulatory actions: The company promoters are involved in certain regulatory actions, including notices and summons with requests for information from the Enforcement Directorate and the Central Bureau of Investigation, and proceedings and investigations in respect of certain criminal proceedings. Any adverse outcome in such matters may adversely affect the company's business, reputation, financial condition, and results of operations.

Raw material price volatility: Delays, interruptions, or reductions in the supply of raw materials to manufacture products and abrupt fluctuations in the prices of raw materials may adversely affect the company's business, results of operation, financial condition, and cash flows.

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Risk of supply disruption: The company sources most of its base oil (its key raw material) from South Korea and the Gulf Co-operation Council region. Any inability to obtain base oil from these countries in the absence of alternative sources may result in the delay or cancellation of orders for its products, adversely impact customer relationships, and have a material adverse impact on company business, financial condition, and results of operations.

Dependency risk: The company obtains a substantial portion of its raw materials from a limited number of suppliers, and it doesn't have long-term contracts with suppliers. If one or more of its top suppliers were to suffer a deterioration of their business, cease doing business with them, or substantially reduce their dealings with the company. 

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Operational setbacks: Any slowdown or shutdown in its manufacturing operations, or under-utilization at its manufacturing facilities, including due to labour unrest, or any inability to obtain adequate electricity, fuel, or water with respect to such operations, could hurt the company.

Vulnerability to customer contract terminations: The company does not have long-term agreements with its customers. If a significant number of its customers choose not to place purchase orders with the company regularly or choose to terminate contracts, the business, financial condition, and results of operations may be adversely affected.

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IP vulnerability: The company does not hold any patents or other forms of intellectual property protection in relation to its manufacturing processes, and the company's inability to maintain the integrity and secrecy of its manufacturing processes may adversely affect its business. Further, the company's inability to protect or use its trademarks may also adversely affect its business.

Market sensitivity: The company's overall business and the demand for its products are dependent on the end industries in which they are used, and any decline in the demand for the end products could have an adverse impact.

Quality standards and compliance: The company is subject to strict quality requirements, standards, and inspections, and the success and acceptance of its products by customers are largely dependent on its ability to meet such quality requirements and standards. 

Its failure to comply with the quality standards and technical specifications prescribed by such customers may lead to a loss of business from such customers and could negatively impact its reputation.

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Impact on share price: "One of our independent directors, Ms Deena Asit Mehta, is involved in certain regulatory proceedings. Any adverse outcome in such matters may adversely affect our business and reputation or cause the price of our equity shares to decline," the company said in its RHP report.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.