Gemini Edible Fats (GEF), one of India’s largest edible oil companies, filed its papers for an Initial Public Offering earlier this month.

Adani Wilmar, India’s largest edible oil company, has also filed for an IPO recently. GEF’s existing shareholders will be selling a part of their stake through an offer for sale.

The shareholders are expected to offload Rs 2,500 crore worth of shares. However, the Securities and Exchange Board of India (SEBI) has kept both the GEF and Adani-Wilmar IPOs in abeyance for now.

Business Overview

GEF is the market leader in the sunflower oils segment with its “Freedom” brand, in the states of Telangana, Andhra Pradesh, and Odisha. It also holds the third largest market share position in Karnataka.

GEF is amongst the top two companies by market share in the branded sunflower oil segment on a pan-India basis as of Financial Year 2021 (FY21).

It has integrated operations, right from the importing of crude edible oil to the processing, packaging and distribution of the products. These range of edible oil and fat products are sold to GEF’s customers under its three business verticals — branded retail consumer, industrial consumer and bulk merchandising.

Branded Retail Consumers: The company processes and markets edible oil under its brands like “Freedom” and “First Class”. These include palm oil, sunflower oil, rice bran oil, palmolein oil, palm kernel oil etc.

The products are distributed to retail stores through the GEF’s network of distributors. It also sells to modern trade channels such as supermarket chains and online grocers. Sunflower oil is the biggest seller in this category.

As the retail business requires brand awareness, the company has been investing in advertising and brand building exercises.

Industrial Consumers: The company supplies its products in bulk to several fast moving consumer goods manufacturers (FMCG). The segment’s customers are largely located in south India. It has a market share of 16 per cent in south India in special bakery fats.

Bulk Merchandising: The company sells its products in bulk to other players who resell it under their own brands or as unbranded loose products.

Branded retail and the bulk merchandising segments are the highest revenue contributors to GEF’s revenue with a 90 per cent share.

Financial Performance

The company has grown its revenues at a compounded annual growth rate of around 20 per cent per annum. EBIDTA margins have hovered around 4-5 per cent over the last two years.

But for FY21, margins have almost doubled to nine per cent. However, it might be an anomaly as its competitors have not reported any increase in margins for FY21.

Branded retail and industrial consumers segments have higher margins, while bulk merchandising has the lowest margins among the three business segments.

The company operates in a sector with ac high net fixed asset turnover. Therefore, a small amount of capital expenditure yields high sales. The company has generated more than Rs. 15 in sales for every rupee invested in plant, property and equipment.

However, the ease of setting up oil manufacturing plants has also attracted huge competition from both the organised and unorganised sectors.

The high competition in the space, combined with the dependence on volatile raw material can lower the company’s margins. Raw material costs is GEF’s largest cost centre.

The company has also been lowering its debt, which is a positive sign. However, the company has reported negative cash flows in the past. The company had also raised money from Singapore-based Black River Foods in the past to shore up its finances.

Key Risks

Related Party Transactions

The company has a high volume of related party transactions with promoters.

High Competition

Like mentioned earlier, the company operates in a space with low barriers to entry and has almost no pricing power.

Raw Material Price Volatility

GEF is exposed to vagaries in commodity markets world over. The industry has wafer thin margins and is heavily affected by volatility in raw material prices.

Gemini Edible and Fats

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