The local lubricant manufacturer, Lub-rref, will make its debut on the twin bourses on the 9th of March. The 19-year old Chittagong based company has raised Tk 150 crore through the book building method from the general public. Their company’s products are branded as BNO Lubricants.
The Bangladesh Securities and Exchange Commission (BSEC), which is the stock market regulator, has approved the company’s proposal for the initial public offering on the 18th of November of 2020. The IPO subscription of the company was held between January the 26th and February 1st of 2021.
Based on the book-building method of the IPO, half of the company’s shares were issued to the eligible investors, who set the minimum price at Tk 30 each through bidding. The remaining half of the local lubricant company’s shares was sought after by the general public for purchase on a 10 per cent discount to the cut off price, which meant the general investors got IPO shares at Tk 27 each.
According to the prospectus from Lub-rref, approximately 65 per cent of the proceeds from their IPO would go towards the acquisition and installation of machinery for its existing manufacturing plant, that can enable the company to capture 20 per cent share from its existing 5.4 per cent.
“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. According to BRAC-EPL, the industry is expected to expand at a compound annual growth rate (CAGR) of 3 per cent until the year of 2024. The report has added however that due to the pandemic, it is expected that the lubricant industry will be sluggish in the first half of 2021.
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.
According to Brac-EPL, Lub-rref posted a top-line 3 year CAGR of 18.1 per cent in contrast to the MJL’s 6 per cent. The top-line refers to a company’s revenue or grass sales. Since the year of 2017, the oil manufacturer has been maintaining a sustainable gross profit margin of about 32 per cent, whereas MJL’s decline to 27.3 per cent in 2019 from 38.8 per cent in the year of 2017.
But despite all of that, the report also stated that even though there was a steep decline in gross profit margin, MJL reported a standalone net profit margin of 15.2 per cent in 2019, which is a 166 basis points higher than Lub-rref’s. Lub-rref though has much room to improve on its operational efficiency. This was shown in the year of 2019 where Lub-rref’s reported return on equity (ROE) of 6.5 per cent and MJL at 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 better the efficiency of the company’s management at generating income and growth from its equity financing.
Similarly, Lub-rref’s return on assets, 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.