Lub-rref gets approval for Tk150cr IPO to increase market share

Highlights:

• Lub-rref will invest Tk98 crore to expand capacity
• Bangladesh's annual lubricant demand is 1.2 lakh tonnes
• Lubricant market's annual turnover around Tk6,000 crore
• Lub-rref's brand BNO annually sells 10,000 tonnes for Tk175 crore 
• Local market's annual demand to grow to 1.6 lakh tonnes
• Company eyes 20% of the local market share
• 60% of BNO oil is consumed in automotive sector
• 35%of BNO oil is used in industries

Lub-rref (Bangladesh) Ltd has received the regulator's approval to explore the price for its primary shares in an initial public offering (IPO) under the book-building method.

The local lubricant manufacturer will use the Tk150-crore IPO fund to install new machineries at its plant, alongside repaying some expensive bank loans.

The cost of IPO process will also be met from the fund to be received from public investors, said the Bangladesh Securities and Exchange Commission (BSEC) on Thursday. 

"We will invest Tk98 crore to expand our existing manufacturing plant, which would enable us to capture 20 percent market volume, from the existing 8 percent," said Mofizur Rahaman, chief financial officer (CFO) of the company.

He said currently BNO Lubricants – a brand of the company – is selling around 10,000 tonnes of lubricants annually for Tk175 crore.

Bangladesh's lubricant market, with an average 5 percent growth, has now risen to an annual demand of 1.2 lakh tonnes, and the annual turnover is around Tk6,000 crore, said Mofizur.

He mentioned that his company is expecting the market to grow to 1.6 lakh tonnes in the next three years.

Incorporated in 2001, the company commercially launched its manufacturing plant in 2006. It has gained respect for its state-of-the-art testing facility, according to the company CFO.

The company currently caters 60 percent of its customers with responsibly recycled lubricants, while the remaining 40 percent is made out of imported base oil – the key raw material for lubricants.

The CFO also said currently 60 percent of BNO Lubricants is being used by automotive consumers, while around 35 percent of its oil is used in industries, including factories, power transformers, power plant engines and industrial generators.

Marine engines consume 5 percent lubricants of the company.

"Alongside the steadily growing automotive market, we are looking at the industrial segment for significant growth as the country is supposed to see a huge jump there," said Mofizur Rahaman.

Repayment of expensive bank loans of Tk46 crore from the IPO fund would help to reduce the company's finance cost. Tk6 crore is being spent to process the public offering.

As of the fiscal year that ended on June 30, 2019, the company earned Tk2.08 against each of its shares, while the five years' average earnings per share was Tk2.23.

The net asset value per share of the company with a Tk100 crore paid-up capital was Tk31.92 a year ago, while it would be Tk25.96 without adding the revaluation surplus of assets.

NRB Equity Management is working as the issue manager to facilitate the stock market listing of the company.

According to the book-building process rules, qualified institutional investors will bid to set a reference price of Lub-rref shares and later the general public will apply for the same at a 10 percent discount.