By offering key services for petroleum retailing, Confidence Petroleum is set to emerge as an important player in LPG and CNG businesses across the country
Beta 0.39
Institutional Holding 0.83%
Current Dividend Yield 0%
Current P/E 10.1
Current Market Price Rs 9.1
Current Market Cap Rs 234 cr
CONFIDENCE Petroleum has emerged a key vendor for marketing operations of oil and gas players. Focussing on its key clientele the company is expanding its bouquet of offerings and is adding capacities. Considering the interesting opportunities lying ahead for this little known company, it appears attractive for the long-term investors.
BUSINESS:
Confidence Petroleum (CPL) is establishing itself as an allservice provider for the marketing and distribution needs of Indian oil marketing companies. The company has scaled up its traditional businesses of LPG cylinders and LPG bottling and is investing heavily in auto LPG and natural gas distribution related businesses. CPL has emerged India’s largest bottler of liquefied petroleum gas (LPG) operating out of 51 locations. These dispersed facilities offer greater flexibility and cost advantage to petroleum retailers in supplying LPG to domestic users spread across the country. The company is also the largest LPG cylinder manufacturer with 6 facilities having an installed capacity of around 42 lakh cylinders per annum. Its 7.5 lakh unit per annum plant near Kandla in Gujarate is a 100% export oriented unit (EOU). The company has set up 50 auto LPG dispensing stations (ALDS) across various cities under the brand of GoGas. The company has also entered the natural gas related businesses and recently commissioned a 3-lakh unit per annum cylinder manufacturing facility for compressed natural gas (CNG). It has also launched auto meter reading solutions for piped natural gas (PNG) sold to households by the city gas distributors (CGD). Towards the end of year 2008, the company acquired two ethanol manufacturing units with a combined capacity of 1.5 lakh liters per day and one crude oil refining unit with 2 lakh liters per day capacity in Maharashtra. The company acquired these distressed assets for a low investment of around Rs 7.5 crore, which allows them the flexibility of operating only when profitable.
GROWTH DRIVERS:
The company has recently commissioned CNG cylinder manufacturing plant in Vizag for exports market. It is currently setting up LPG and CNG cylinder manufacturing complex in Uttarakhand, which will commission operations by end of 2009. This new plant will enjoy 15-year exemption from sales and excise duties. The company is carrying an order book of over 30 lakh LPG cylinders. It has significant growth plans in ALDS to scale up to 250 stations in next couple of years and has also won a turn-key contract for Indian Oil to set up 9 similar stations. The company has tied up with Israel’s Energetech to introduce an innovative technology for automotive natural gas called ‘Adsorbed Natural Gas’ (ANG). This would enable it to store large quantity of natural gas under less pressure, enabling light-weight cylinders, which could be installed even on two-wheelers. This being a new concept in India needs government approval and the company has received permission from the Chief Controller of Explosives to conduct tests. This technology, when commercialised, would enable it to transport natural gas from the marginal fields. The company also has plans to augment its offering to the petroleum companies by adding fuel-dispensing units for petroleum retailing and also move into setting up auto CNG stations.
FINANCIALS:
The current management has taken over the listed company with two LPG bottling plants, which was a sick unit, few years back and has turned it around. Hence, we do not have long financial history for the company. Last year the company raised over Rs 100 crore through a GDR issue and share warrants. The company’s debt-to-equity ratio has been steadily coming down to 0.1 for the year ended March 2008. Post completion of its Uttarakhand plant, CPL would be carrying around Rs 30 crore of debt. The company has approved a share buy-back of upto 5% of its equity from open market at a price less than Rs 20 per share. The company is currently in the process of amalgamating three of its subsidiaries with itself.
VALUATIONS:
At the current market price of Rs 9.10, the scrip is trading 10 times its earnings for the 12-month ended December 2008. We expect the company to end FY09 with a net profit of Rs 30 crore, which discounts the current price 7.8 times. During FY 2010, the company is expected to derive meaningful benefit of its investments in Vizag and Uttarakhand plants as well as the acquisitions.
Beta 0.39
Institutional Holding 0.83%
Current Dividend Yield 0%
Current P/E 10.1
Current Market Price Rs 9.1
Current Market Cap Rs 234 cr
CONFIDENCE Petroleum has emerged a key vendor for marketing operations of oil and gas players. Focussing on its key clientele the company is expanding its bouquet of offerings and is adding capacities. Considering the interesting opportunities lying ahead for this little known company, it appears attractive for the long-term investors.
BUSINESS:
Confidence Petroleum (CPL) is establishing itself as an allservice provider for the marketing and distribution needs of Indian oil marketing companies. The company has scaled up its traditional businesses of LPG cylinders and LPG bottling and is investing heavily in auto LPG and natural gas distribution related businesses. CPL has emerged India’s largest bottler of liquefied petroleum gas (LPG) operating out of 51 locations. These dispersed facilities offer greater flexibility and cost advantage to petroleum retailers in supplying LPG to domestic users spread across the country. The company is also the largest LPG cylinder manufacturer with 6 facilities having an installed capacity of around 42 lakh cylinders per annum. Its 7.5 lakh unit per annum plant near Kandla in Gujarate is a 100% export oriented unit (EOU). The company has set up 50 auto LPG dispensing stations (ALDS) across various cities under the brand of GoGas. The company has also entered the natural gas related businesses and recently commissioned a 3-lakh unit per annum cylinder manufacturing facility for compressed natural gas (CNG). It has also launched auto meter reading solutions for piped natural gas (PNG) sold to households by the city gas distributors (CGD). Towards the end of year 2008, the company acquired two ethanol manufacturing units with a combined capacity of 1.5 lakh liters per day and one crude oil refining unit with 2 lakh liters per day capacity in Maharashtra. The company acquired these distressed assets for a low investment of around Rs 7.5 crore, which allows them the flexibility of operating only when profitable.
GROWTH DRIVERS:
The company has recently commissioned CNG cylinder manufacturing plant in Vizag for exports market. It is currently setting up LPG and CNG cylinder manufacturing complex in Uttarakhand, which will commission operations by end of 2009. This new plant will enjoy 15-year exemption from sales and excise duties. The company is carrying an order book of over 30 lakh LPG cylinders. It has significant growth plans in ALDS to scale up to 250 stations in next couple of years and has also won a turn-key contract for Indian Oil to set up 9 similar stations. The company has tied up with Israel’s Energetech to introduce an innovative technology for automotive natural gas called ‘Adsorbed Natural Gas’ (ANG). This would enable it to store large quantity of natural gas under less pressure, enabling light-weight cylinders, which could be installed even on two-wheelers. This being a new concept in India needs government approval and the company has received permission from the Chief Controller of Explosives to conduct tests. This technology, when commercialised, would enable it to transport natural gas from the marginal fields. The company also has plans to augment its offering to the petroleum companies by adding fuel-dispensing units for petroleum retailing and also move into setting up auto CNG stations.
FINANCIALS:
The current management has taken over the listed company with two LPG bottling plants, which was a sick unit, few years back and has turned it around. Hence, we do not have long financial history for the company. Last year the company raised over Rs 100 crore through a GDR issue and share warrants. The company’s debt-to-equity ratio has been steadily coming down to 0.1 for the year ended March 2008. Post completion of its Uttarakhand plant, CPL would be carrying around Rs 30 crore of debt. The company has approved a share buy-back of upto 5% of its equity from open market at a price less than Rs 20 per share. The company is currently in the process of amalgamating three of its subsidiaries with itself.
VALUATIONS:
At the current market price of Rs 9.10, the scrip is trading 10 times its earnings for the 12-month ended December 2008. We expect the company to end FY09 with a net profit of Rs 30 crore, which discounts the current price 7.8 times. During FY 2010, the company is expected to derive meaningful benefit of its investments in Vizag and Uttarakhand plants as well as the acquisitions.
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