Gokul Refoils' to put up 1500 tn/day extraction plant

Gokul Refoils and Solvent 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.

Ram Lohia, CEO of Gokul Refoils & Solvents said the IPO will facilitate backward integration in the form of putting up 1,500 tonne/day soybean solvent extraction plant. This will be the first food-based soy crushing plant in the country.

Their thrust is to take the share from the unorganised sector in edible oils.

Excerpts from CNBC-TV18's exclusive interview with Ram Lohia:

Q: Can you give us brief details about the company’s main activities and what kind of growth prospects you see?

A: We are basically into seed processing followed by solvent extraction, refining of all kinds of oils and vanaspati manufacturing and also in power generation.

We are expanding our capacities very fast and are doing a lot of backward integration on a YoY basis. Our compound growth in terms of turnover over the last five years have been almost 40%. Similarly profitability also has been growing at the rate of 40%.

As a part of this IPO, we want to do backward integration in the form of putting up 1,500 tonne/day soybean solvent extraction plant and this is the first food-based soy crushing plant in the country with the latest technology available in the world, which has been planned.

Similarly, we have a small refinery of 100 tonne per day in Surat, which we want to expand to 400 tonnes per day. Apart from that, we have plans to reduce the cost of procurement of raw material because 85% of the cost of raw material comprises of manufacturing cost. So, we want to minimise on raw material cost and we want to increase our branded sale from 18% to 30% and onwards. That is how we have planned our brand building exercise.

Third thing is that in terms of procurement of raw material, we want to increase our capacity of storage, so that we can minimise the cost of logistics.

Q: Given the concern on controlling costs, the 8-month reported margins for FY08 have been at about 6.5%. Going forward, what is the outlook there, are you going to look at containing margins at these levels or the cost pressures are so high, especially because of the rise in soybean prices?

A: Our thrust basically is to take the share from the unorganised sector in edible oil. Only 25% is in organised sector. Small sectors comprise of 65%, through manufacturing efficiencies and in terms of their infrastructure, brand building exercise is very minimal. So, we are looking at that market.

We want to take the share from them. Naturally in the retail and branded sales the profit margins are much more. Our thrust has been gradually increasing from that level, 18%, 30%, 37% till November ’07.

Q: You have indicated that you also want to tap export markets; will you be able to manage rupee fluctuations at this juncture?

A: Luckily, our total processing facilities comprise of import as well as export elements. Importing in terms of edible oils and exporting in terms of deoiled meal, 80% of the meal gets exported. So, we have a natural balance in terms of Forex.

Q: What has been the growth of your market share over the past two-three years?

A: 18% was the retail sale in ’06. In ’07 it has gone up to 30% and in November ’07 it is 37% of total production. So, our shift has been very fast from bulk sale to retail sale.

Q: The other concern is about how you have your presence in commodity trading. Given that it is a regulated industry, how are you going to be looking at making profits?

A: We look basically to our profit margins in terms of manufacturing facilities. If the raw material prices go down, our finished goods prices go down. If the raw material prices go up, our finished product prices go up. Like the customs duty was reduced by the government one month back. So, investment in terms of raw material has gone down thereby reducing our interest cost. So, we basically get an advantage. But we don’t look into the trading aspect. We basically are a big manufacturing base.