Arabian Petroleum
- Arabian Petroleum is coming out with an initial public offering (IPO) of 28,92,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share.
- The issue will open for subscription on September 25, 2023 and will close on September 27, 2023.
- The shares will be listed on NSE Emerge.
- The share is priced 7.0 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Hem Securities.
- Compliance Officer for the issue is Sejal Vishek Jain.
Profile of the company
The company in the business of manufacturing wide range of Lubricants including Specialty Oils, Coolants etc used for Industrial and Automotive applications. Its business is categorized into two distinctive product division: (i) Automotive Lubricants - Arzol and (ii) Industrial Lubricants - SPL. It is dedicated to consistently providing products that deliver stellar quality and comply with statutory requirements in the Automotive and Industrial Lubricants domain. The company took over the manufacturing and trading business of Industrial & Automotive Lubricants from the proprietorship firm ‘Arabian Petroleum’ run by its proprietor Hemant D Mehta HUF vide Business Takeover agreement dated December 25, 2015, in the manner that all the Know- how, goodwill, clients of the proprietorship firm were transferred to the company and the company set up its own manufacturing facility at a plant in Ambernath situated at Thane, Maharashtra, India.
Its domestic and international customers are spread across multiple industries, including pharmaceutical, FMCG, chemicals, steel, rubber and tyre, power, civil engineering, electrical appliances, textile, telecommunication, chemical, cables and conductors and automobile industry etc. Apart from private players, it also derives its revenues under the contracts from the Government sectors (both central and state) and associated entities. It is honored to be one of the suppliers of lubricants to the Indian Armed Forces and have successfully delivered lubricant products to Border Security Force (BSF), Indian Air Force (IAF) and Indian Navy across various parts of the country. It has product approval certification from Volvo Group Trucks Technology, Renault Group and MACK Trucks for its product ‘Milage Synactivs 15W-40’ engine oil. It has recently received OEM approval from Bharat Earth Movers Limited (Formerly - BEML) for their entire range of products like Engine oil, hydraulic oil etc.
Proceed is being used for:
- Meeting working capital requirements
- General corporate purpose
- Meeting issue expenses
Industry overview
Lubricating oil is considered as a fluid structural element of machines and devices. Its main task is to create a layer in the form of a microfilm between the moving elements of the device. Due to the specific properties, lubricating oil during operation can fulfill many functions, such as minimization of friction, elimination of scuffing of rubbing machine elements, washing of carbon deposits and micro particles, anti-corrosion, cooling, and other effects. Both environmental and application properties must be supported when the lubricants content is designed. Therefore, it must be characterized not only by an accurate biodegradability rate, but also, by appropriate physicochemical properties, such as an appropriate range of the viscosity index, dynamic viscosity at negative temperatures, melt temperatures, flash points, evaporability, as well as the basic or acidic number. Lubricating oil is a mixture of base oil (>85%) and enriching additives.
India is the second-largest lubricant consumer in the region, and third in the world, after the United States and China. The country is the fourth and sixth largest producer of commercial vehicles and passenger cars, respectively. In India, with the increasing demand for vehicles, several automakers have started investing heavily in various segments of the industry. Furthermore, the Indian government has been rolling out initiatives to attract FDI in the automotive industry, allowing 100% FDI under the automatic route. The government has also planned to introduce a new Green Urban Transport Scheme with central assistance of about INR 250 billion, to boost the growth of urban transport, along the low-carbon path, with an aim to reduce air pollution substantially.
A major thrust has been given to Research and Development to support the Lubricant business initiatives. Following new products were developed : i) Speed - Branded Premium Petrol ii) High Performance Engine Oil for Gasoline iii) Customer specific Rust Preventive Oils iv) Gas Engine Oil for stationary natural gas engines v) Exclusive grades for Defence vi) Original Equipment Manufacturer (OEM) specific Hydraulic Oils vii) Alternate formulations for existing grades.
Pros and strengths
One Stop Shop for all lubricants: it is one of the few manufacturers in India with comprehensive in-house capabilities of developing and manufacturing various types of Automotive and Industrial Lubricants including Specialty Oils, Coolants etc. Its products cater to multiple industries like: pharmaceutical, FMCG, chemicals, steel, rubber and tyre, power, civil engineering, electrical appliances, textile, telecommunication, chemical, cables and conductors and automobile industry etc. The company develops and manufactures a wide range of lubricating products with excellent demulsibility, oxidation and high thermal stability, low operational cost, protection against rust and corrosion, improved cleanliness, good water separating capability etc.
Long standing relationship with customers: Its past experience in the supply of its products, ability to meet specific technical requirements of its customers, reputation for quality and safety features present in its products and the price competitiveness of its offerings, has not only strengthened its position in the market but also has enabled it to establish and maintain relationships with its customers. It strives to understand its customers’ specific business needs and provide products to meet their requirements. Its ability to provide quality products as per the customer specification and its consistent customer servicing standards has enabled it to increase its customers’ dependence on it.
Quality assurance and standards: Quality Control and Quality Assurance are integral part of its manufacturing operations. Finished products are completely tested and released for sale only after the Quality Control department issues the QC release certificates. For adherence to its Quality standards it is accredited with ISO 9001:2015 - for Quality Management System for Manufacturing and supply of Industrial and Automotive Lubricants, ISO 45001:2018 for Occupational, health and Safety Management System for Manufacturing and supply of Industrial and Automotive Lubricants and ISO 14001:2015 for Environmental Management System for Manufacturing and supply of Industrial and Automotive Lubricants. Over and above there are constant checks by way of in-process controls. Its commitment of providing quality products is boasted by its industry knowledge expertise of its experienced and trained team to provide quality output to its customers.
Risks and concerns
Rely on third parties for transportation of raw material: The success of its business depends largely on third party transportation services both for supply of its raw materials and for delivery of its finished goods. A delay in the delivery of its raw materials to its manufacturing facilities may result in the slowdown or shutdown of its operations. It is exposed to fluctuations in transportation costs. Also, if the terms offered to such logistic providers by its competitors are more favorable than those offered by it they may decline to provide their services to it. It may also be affected by transport strikes, which may affect its delivery schedules. If it is unable to secure alternate transport arrangements in a timely manner and at an acceptable cost, or at all, its business, results of operations and financial condition may be adversely affected.
Operate in competitive business environment: The business of manufacturing of lubricants is very competitive. It competes on the basis of its ability to fulfil its contractual obligations including the quality and timely delivery of products. Its competitors may have substantially greater financial, management, research and marketing resources than it has as a result of which they may be able to utilise their resources and economies of scale to develop improved products, divert sales away from it by winning broader contracts or hire its employees by offering more lucrative compensation packages.
Working capital requirements: Its business requires significant working capital including in connection with its manufacturing operations, financing its inventory, providing bank guarantees, purchase of raw materials and its development of new or customized products which may be adversely affected by changes in terms of credit and payment. Delays in payment under on-going contracts or reduction of advance payments due to lower order intake or inventory and work in progress increases and/or accelerated payments to suppliers, fixed deposits to facilitate bank guarantees to its customers, could adversely affect its working capital, lower its cash flows and materially increase the amount of working capital to be funded.
Outlook
Arabian Petroleum is engaged in the business of manufacturing a wide range of Lubricants including speciality Oils, Coolants, etc used for application in automobiles and industrial machines and appliances. Its business is categorized into two distinctive product division: (i) Automotive Lubricants - Arzol and (ii) (Industrial Lubricants - SPL. It is dedicated to consistently providing products that deliver stellar quality and comply with statutory requirements in the Automotive and Industrial Lubricants domain. On the concern side, the business of manufacturing of lubricants is very competitive. It competes on the basis of its ability to fulfil its contractual obligations including the quality and timely delivery of products.
The company is coming out with an IPO of 28,92,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share to mobilize Rs 20.24 crore. On performance front, the company’s total income for the financial year 2022-23 stood at Rs 24,394.68 lakh whereas in Financial Year 2021-22 the same stood at Rs 19,159.10 lakh representing an increase of 27.33%. The main reason of increase was increase in the volume of business operations of the company. The Profit after tax for the year increase by 17.41% from net profit of Rs 414.34 lakh in financial year 2021-22 to net profit Rs 486.48 lakh in financial year 2022-23. Meanwhile, it aims to continue to maintain its focus on cost management, including in-house integrated manufacturing capabilities across its business to deliver growth as well as to achieve economies of scale. It will continues to seek to manage its supply chain costs through optimal inventory levels, economic orders and other measures. Economies of scale will also enable it to continuously improve its operational efficiencies.
