Should You Subscribe to the IPO of Moove Lubricants Holdings?

The Offer

Company Overview

Moove Lubricants Holdings (MOOV) is a leading global provider of lubricant solutions, specializing in the formulation, manufacturing, distribution, and marketing of lubricant products across various end markets. The company has established a strong strategic alliance with ExxonMobil, leveraging its brand, research capabilities, and proprietary technologies to enhance its supply chain and marketing strategies. With a focus on optimizing costs and tailoring products to meet evolving customer needs, Moove distinguishes itself through its expertise in sourcing and deep supply chain knowledge, allowing it to deliver high-performance products at competitive prices. This customer-centric approach, combined with a culture of high performance, has driven margin expansion and strong cash returns on capital investments, positioning Moove as a preferred partner in the lubricant industry.

Key Highlights

Primary Offering:

The total number of shares available under the offers includes 6,250,000 common shares issued by the company and 18,750,000 common shares offered by the selling shareholders. If the underwriters fully exercise their over-allotment option, the total number of common shares available would increase to 22,500,000.

Use of proceeds:

Moove estimates that the net proceeds from the sale of common shares in its upcoming offering will be approximately USD 83.6 million, based on an assumed initial public offering price of USD 16.00 per share (the midpoint of the estimated price range), after accounting for underwriting discounts, commissions, and offering expenses. A USD 1.00 increase or decrease in the assumed IPO price would alter the net proceeds by approximately USD 5.9 million, while a change of 1.0 million shares offered would impact net proceeds by about USD 15.1 million. The company plans to allocate USD 55.8 million (or INR310.0 million) of these proceeds for the acquisition of DIPI Holdings S.A. and its subsidiaries, with the remainder directed toward general corporate purposes, including working capital and potential future investments. While Moove intends to use the net proceeds as outlined, it retains the flexibility to reallocate funds as necessary, dependent on various factors and unforeseen events. Until the proceeds are utilized, the company will invest them in capital preservation instruments, although there are no guarantees regarding income generation or preservation of value from such investments. It is important to note that Moove will not receive any proceeds from the sale of shares by selling shareholders.

Industry Overview

• Overview of the Lubricants Value Chain: The lubricants value chain encompasses a comprehensive process that begins with the production of raw materials and base oils, extending through blending, distribution, sales, marketing, and after-market services aimed at end customers. This industry is characterized by its complexity and dynamism, necessitating tailored solutions to meet the specialized requirements of both initial raw materials and the ultimate consumers.
• Dynamics of the Lubricants Industry: Base oils and additives serve as the primary raw materials for lubricant production, predominantly sourced from oil and gas companies. These components are then meticulously blended by lubricant manufacturers to formulate specific products. The manufacturing process demands substantial investment in research and development to craft precise formulations that align with the continuously evolving needs of end users. Following this, distributors acquire the lubricants and apply their supply chain expertise to manage warehousing, storage logistics, inventory management, and technical support.
• Growth Prospects and Strategic Focus: According to Kline, the global lubricants market is projected to experience a growth rate of 1.3% annually from 2023 to 2033 in real terms. Moove strategically concentrates on specific profit pools within this broader industry landscape. While the profit pool for raw material suppliers is expected to show only marginal growth during this period, the profit pools for lubricant manufacturers and distributors are forecasted to expand at more robust rates. This growth is driven by trends such as the increasing adoption of higher-value synthetic and semi-synthetic lubricants and the ongoing consolidation within the highly fragmented distribution sector.
• Moove’s Positioning in the Market: With its core competencies situated within the highest growth segments of lubricant blending and intermediary distribution, Moove is exceptionally well-positioned to leverage these favorable industry trends. The company's strategic focus allows it to capitalize on emerging opportunities, ensuring sustained growth and competitive advantage in the lubricants market.

Dividend policy:

On June 12, 2024, MOOV declared a dividend of INR900 million, which was subsequently paid to its shareholders on June 21, 2024. Additionally, the company distributed dividends amounting to INR246.1 million for the fiscal year ending December 31, 2023, and INR248.9 million for the fiscal year ending December 31, 2022. MOOV has not established a formal dividend policy regarding future distributions. The company intends to continue distributing a portion of its future earnings to shareholders at the discretion of its board of directors, subject to applicable laws. Such determinations will be influenced by various factors, including financial condition, operational results, capital requirements, contractual restrictions, prevailing business conditions, and any other relevant considerations deemed pertinent by the board of directors.

Financial Highlights (Results of Operations) (Expressed in USD)

• Financial Performance Metrics: MOOV's financial performance for the first half of 2024 includes a revenue of ₹5,024.8 million (USD 903.9 million), down 1.6% from the previous year, and a profit of ₹237.6 million (USD 42.7 million), contrasting with a loss in 2023. The Adjusted EBITDA increased by 9.0% to ₹690.2 million (USD 124.2 million). For the full year 2023, revenue was ₹10,074.2 million (USD 1,812.3 million), profit rose by 66.9% to ₹266.0 million (USD 47.9 million), while Adjusted EBITDA saw a significant increase of 107.5% to ₹1,243.1 million (USD 223.6 million).
• Profitability and Margin Analysis: The profit margin for the first half of 2024 improved to 4.7% from a negative margin in the prior year, while the Adjusted EBITDA margin rose to 13.7%. Over 2021 to 2023, the profit margin decreased from 4.8% to 2.6%, but the Adjusted EBITDA margin increased to 12.3%. Unit Adjusted EBITDA also grew to ₹1.87 (USD 0.34) per liter. These positive trends were driven by a 22.5% organic revenue growth and significant contributions from acquisitions, particularly PetroChoice and Tirreno.
• Regional Revenue Distribution: In the first half of 2024, revenue distribution was 47.3% from South America, 29.2% from Europe, and 23.5% from North America, with Adjusted EBITDA predominantly generated in South America (70.8%). For the full year 2023, revenue was 45.4% from South America, 30.2% from Europe, and 24.4% from North America, with Adjusted EBITDA at 66.4% from South America.
• Lubricant Sales Volume Analysis: MOOV's lubricant sales volume for the first half of 2024 decreased by 0.8% to 324.4 million liters, mainly due to declines in Europe and North America. Conversely, for the year ending December 31, 2023, sales volume rose by 26.8% to 665.5 million liters, driven by the acquisition of PetroChoice and organic growth in South America through effective marketing strategies.
• Historical Sales Volume Trends: In 2022, MOOV's lubricant sales volume increased by 35.0% to 524.7 million liters, largely due to the PetroChoice acquisition. Sales volumes in South America and Europe remained stable during this period.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “MOOV” is exposed to a variety of risks such as:

• Dependency on ExxonMobil Agreements: MOOV's rights to blend, market, and sell ExxonMobil products are contingent upon its distribution agreements with ExxonMobil, which can be terminated or not renewed at the discretion of ExxonMobil. This dependency poses a risk to MOOV's operations and financial health, as the expiration or termination of these agreements would compel MOOV to cease using ExxonMobil's brand and products, significantly impacting its market position and profitability.
• Manufacturing and Supply Chain Vulnerabilities: Disruptions in MOOV's manufacturing facilities or supply chain could severely affect its operations. Risks include potential shutdowns due to natural disasters, labor issues, or public health crises, which could lead to a loss of sales. Additionally, instability in utility supply and adverse weather conditions could hinder production, impacting MOOV’s ability to meet customer demands and maintain its financial stability.
• Cybersecurity Threats: MOOV is vulnerable to cyberattacks that could compromise its information technology systems, leading to data breaches, operational disruptions, and significant financial costs. Past incidents have highlighted weaknesses, and despite efforts to enhance cybersecurity measures, the constant evolution of threats presents ongoing risks. Successful cyberattacks could damage MOOV's reputation, lead to regulatory penalties, and affect its financial condition.

Conclusion

Moove Lubricants Holdings is offering an IPO comprising 6.25 million shares from the company and 18.75 million from selling shareholders, potentially increasing to 22.5 million if the over-allotment option is exercised. The estimated net proceeds from the IPO, projected at approximately USD 83.6 million, will primarily fund the acquisition of DIPI Holdings S.A., with the remainder earmarked for general corporate purposes. Moove, a key player in the lubricant industry with a strategic partnership with ExxonMobil, leverages its deep supply chain expertise to deliver high-performance products. Despite reporting a decline in revenue for the first half of 2024 compared to the previous year, the company showed improved profitability metrics. However, investment risks include dependency on ExxonMobil agreements, potential manufacturing disruptions, and vulnerabilities to cybersecurity threats.

Hence, given the financial performance of the company, use of proceeds, and associated risks “Moove Lubricants Holdings (MOOV)” IPO seems “Neutral" at the IPO price.