The general public can apply to buy half of Lub-rref's IPO shares at Tk 27 each
General investors will get the chance to sign up for stock sale ofLub-rref (Bangladesh), which supplies the BNO-brand lubricant, for the next week.
The 19-year-old Chattogram-based company is raising Tk 150 crore from the public via the book-building method.
According to the book-building method of the initial public offering, half of the company's shares will be issued to eligible institutional investors, who have set the cut-off price at Tk 30 each through bidding.
The general public can apply to buy the remaining half of the local lubricant company's shares on a 10 per cent discount to the cut-off price, meaning the general investors will get IPO shares at Tk 27 each.
About 65 per cent of the proceeds from the initial public offering would go towards acquisition and installation of machinery for its existing manufacturing plant, which would enable the company to capture 20 per cent market share from its existing 5.4 per cent, according to Lub-rref's IPO prospectus.
“There is enough opportunity to replace foreign brands with a national brand, especially our BNO lubricants, in the greater interest of the local industries,” Mohammed Yousuf, its managing director, earlier told Dhaka Tribune.
Since 85 per cent of the demand is served by imports, there is ample opportunity to grow, he added.
Bangladesh’s lubricant industry has been growing at 5 to 7 per cent per annum, according to LankaBangla Securities.
In 2019, the industry’s sales were about Tk 3,616 crore, it said.
The industry is expected to expand at a compound annual growth rate (CAGR) of 3 per cent until 2024, according to Brac-EPL.
But thanks to the pandemic, the lubricant industry is likely to remain sluggish in the first half of 2021, the report said.
The major portion of the lubricant demand comes from the automotive sector and the industrial sectors, both of which were impacted by the disruption in normal working order for the pandemic.
“Though these sectors are recovering fast, it may still take more time to reach the previous level,” the study said.
Lub-rref, which has more than 85 different product lines of engine oil, generator oil, marine engine oil, automotive gear oil, hydraulic oil, compressor oil, industrial gear oil, machine oil, transformer oil, grease and so on, has performed better vis-à-vis the market leader MJL, which markets the Mobil brand of lubricants in Bangladesh, in recent years.
It posted a top-line three-year CAGR of 18.1 per cent in contrast to MJL’s 6 per cent, according to Brac-EPL.
The top-line refers to a company’s revenue or gross sales.
Since 2017, Lub-rref is maintaining a sustainable gross profit margin of about 32 per cent, whereas MJL’s slumped to 27.3 per cent in 2019 from 38.8 per cent in 2017.
Despite the sharp decline in gross profit margin, MJL reported a standalone net profit margin of 15.2 per cent in 2019, which is 166 basis points higher than Lub-rref’s, the report said.
Lub-rref though has much room to improve on its operational efficiency.
In 2019, Lub-rref reported return on equity (ROE) of 6.5 per cent and MJL 13.3 per cent.
The ROE is a ratio that provides investors with insight into how efficiently a company (or more specifically, its management team) is handling the money that shareholders have contributed to it.
The higher the ROE, the more efficient a company's management is at generating income and growth from its equity financing.
Similarly, Lub-rref’s return on asset, which is another measurement for gauging how efficient a company's management is at using its assets to generate earnings, was lower than MJL’s: 4.1 per cent versus 7.3 per cent.
The ROA figure gives an idea of how effective the company is in converting the money it invests into net income. The higher the ROA number, the better, because the company is earning more money on less investment.
In 2019, Lub-rref reported a profit of Tk 20.8 crore, up from Tk 20.5 crore in the previous year.
NRB Equity Management is acting as the issue manager of the IPO.