Public offering by Hi-Tech Lubricants

ZicHi-Tech Lubricants Limited (HTLL) will become the first lubricant company to go public, by issuing 29 million shares at a floor price of PkR37/share through book building of 75% of the total issue size (6 and 7 January) and remaining 25% to offloaded through general public subscription (25-27 January 2016).

HTLL is expects to raise at least PkR1.07 billion from the listing which will be utilized in expanding its footprint in the lubricants market through forward (establishing retail network) and backward integration (construction of an additional filling line).

HTLL has an established presence in the automotive sector through its “ZIC” brand (14% market share in the passenger car sub-segment) contributing 56% to overall revenues becoming a key growth driver for the company.

Post IPO, the company plans to focus on diesel and motorcycle sub-segments of the automotive market (contributing 31% and 9% to revenues) through competitive pricing and cost efficiencies of bulk imports (utilizing the blending plant).

With an aggregate market share of 6% in lubricants, robust 5-year revenue CAGR of 20%, Gross Margin averaging 24% and Net Margin of 6%, HTLL’s fundamental outlook remains promising.

HTLL) is engaged in the import and distribution of petroleum products/lubricants under the brand name of “ZIC” in Pakistan. It imports lubricants from South Korea, which has the single largest Petrochemical Chemical Complex in the world.

HTLL has a network of more than 150 distribution channels across all major cities of Pakistan. The Company diversified from trading to manufacturing and established a state of the art blending plant at Lahore that became operational in 1QFY16.

HTLL plans to utilize IPO proceeds for funding its investment plan of PkR1.25 billion which envisages the development of a service delivery channels with 37 retail service outlets (9 owned and 29 rentals) and additional filling lines (expected to be streamed online by August this year at its Blending Plant (recently set up with a total investment of PkR776 million).

Analysts believe healthy demand exists for its products. However the company has been facing hurdles in meeting this demand due to shortage of product supply on account of 1) time lag in imports and 2) foreign market specified product sizes of finished products, rendering them ineffective for local market, especially for motorbike segment.

Additionally, HTLL’s newly setup Blending Facility is expected to provide rationalized cost benefits to the company as it is likely to now import in bulk as compared to sealed cartons. The new plant will also produce its own High Density Poly Ethylene bottle/Cap and filling lines for imported lubricants, further extending its cost-saving benefits.

The company has been able to keep costs of goods sold (COGS) at a steady 76% of total revenues, indicating preferred pricing from the supplier and ability to pass on the impact of changes in the PkR/US$ parity. As a result, gross margins have been maintained at a stable 25% during the last five years.

That said, administrative and distribution costs have increase by a 5-year CAGR of 26% as the company increased its footprint in the sector. As a result, bottom-line of the company has recorded a 5-year CAGR of 6.2% during FY10-FY15.

 

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