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SYNOPSIS
Panama Petrochem Ltd. established
in 1975 is one of India’s leading
manufacturers and exporters of
petroleum specialty products.
During the quarter ended, the robust
growth of Net Sales is increased by
78.03% Rs. 1736.30 million.
The company manufactures more
than 80 product variants vital for
Inks and Resins, Textiles, Rubber,
Pharmaceuticals, Cosmetics, Power,
Cables and other different industrial
purposes.
Panama’s business is spread across
India in the form of four
manufacturing plants at Ankleshwar
(Gujarat), Daman (Union Territory),
Marol (Mumbai) and Taloja (Dist.
Raigadh).
Net Sales and PAT of the company
are expected to grow at a CAGR of
32% and 35% over 2010 to 2011E
respectively.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 4640.68 579.51 368.05 63.02 3.33
FY 12E 6311.32 737.31 492.72 57.17 3.67
FY 13E 7321.14 866.58 584.86 67.86 3.09
Stock Data:
Sector: Oil & Gas
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 290.00/182.05
Volume (2 wk. Avg.) 8942.00
BSE Code 524820
Market Cap (Rs in mn) 2032.9
Share Holding Pattern
1 Year Comparative Graph
BSE SENSEX Panama Petrochem
C.M.P: Rs. 235.85 Target Price: Rs. 271.00 Date: Dec 07th 2011 BUY
Panama Petrochem Ltd. Result Update: Q2 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Panama Petrochem 235.85 2032.9 63.02 3.33 0.89 50.00
SAH Petroleum 26.00 114.40 0.65 40.00 0.93 1.00
Castrol India 414.00 10237.42 19.42 21.32 18.50 150.00
Gulf Oil Corp. 53.00 525.47 6.28 8.44 1.43 100.00
Investment Highlights
Q2 FY12 Results Update
Panama Petrochem Ltd. has reported net profit of Rs 113.30 million for the quarter
ended on September 30, 2011 as against Rs 108.62 million in the same quarter last
year, an increase of 4.31%. It has reported net sales of Rs 1736.30 million for the
quarter ended on September 30, 2011 as against Rs 975.31 million in the same
quarter last year, a rise of 78.03%. Total income grew by 78.35% to Rs 1741.53
million from Rs.976.49 million in the same quarter last year. During the quarter, it
reported earnings of Rs 13.15 a share.
Quarterly Results - Standalone (Rs in mn)
As At Sep-11 Sep-10 %change
Net sales 1736.30 975.31 78.03%
PAT 113.30 108.62 4.31%
Basic EPS 13.15 18.60 -29.33%
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Break up of Expenditure
� Declaration of Interim Dividend
Interim dividend declared @ Rs. 3/- per equity share (30%) of Rs. 10 each for the
financial year 2011-12.
Company Profile
Panama Petrochem established in 1975 is one of India’s leading manufacturers and
exporters of petroleum specialty products. The petroleum products are in great
demand for various industries like inks and resins, textiles, rubber, pharmaceuticals,
cosmetics, power, cables and other different industrial purposes.
Panama Petrochem manufactures more than 80 product variants vital for nearly six to
seven industry segments. It is in collaboration with Lubcon, Germany for distribution
of their specialized products. Last but certainly not the least; they also furnish various
Power Generation Boards and Atomic Research Centers with their required products.
The company business is spread across India in the form of four manufacturing plants
at Ankleshwar (Gujarat), Daman (Union Territory), Marol (Mumbai) and Taloja (Dist.
Raigadh). The company is in the field of petroleum speciality oils and solvents for
more than 25 years. Its Ankleshwar Plant is one of the best of its kind in terms of
huge production capacity with large storage tanks and warehouses.
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The company’s new and more value-added products are served to the niche market
and stay always abreast of their competitors. They have procured all the required
statutory approvals that permit them to supply their various oil products to the
different industries.
Global presence
By exploring international markets, Panama Petrochem continuously aims to bring
about a rise in the exports. They export a variety of their products like Petroleum Jelly,
Liquid Paraffin, Transformer Oil and Rubber Process Oil to different countries like
USA, UK, Europe, Middle East, Australia, African Sub-continent and South East Asia
etc. Good infrastructure for the company and their state-of-the-art Research and
Development center help them to simultaneously cater to domestic and international
needs.
Products
Product range of the company includes:
• White Oil
• Turbine Oil
• Spray Oil and Hydraulic Oil
• Transformer Oil
• Petroleum Jelly
• Liquid Paraffin
• White Soft Paraffin
• Petrolatum
It also manufactures Ink Oils (Solvents for Printing Inks & Resins) of various grades.
Its Ink oils find good market in different printing ink & resin manufacturers. Recently
the company has developed wax blends & highly aromatic petroleum oils for rubber
industries, which are well accepted by some of the leading tyre manufacturers.
Specialty Products
The company provides their petroleum specialty products to:
• Cosmetic Industries
• Pharmaceutical Industries
• Ink and Resins Industries
• Transformer MFG Industries
• Rubber and Tyre Industries
• Textile Industries
• Cable MFG Industries
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Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 3202.37 4640.68 6311.32 7321.14
Other Income 63.29 42.88 30.44 31.97
Total Income 3265.66 4683.56 6341.77 7353.10
Expenditure -2880.08 -4104.05 -5604.46 -6486.53
Operating Profit 385.58 579.51 737.31 866.58
Interest -49.00 -53.36 -69.37 -75.61
Gross profit 336.58 526.15 667.95 790.97
Depreciation -13.26 -23.37 -28.04 -31.41
Profit Before Tax 323.32 502.78 639.90 759.56
Tax -84.12 -134.73 -147.18 -174.70
Profit After Tax 239.20 368.05 492.72 584.86
Equity capital 58.40 58.40 86.19 86.19
Reserves 951.34 1324.21 1816.93 2401.79
Face Value 10.00 10.00 10.00 10.00
EPS 40.96 63.02 57.17 67.86
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E
Description 3m 3m 3m 3m
Net sales 1280.91 1280.13 1736.30 1909.93
Other income 7.38 2.62 5.23 5.75
Total Income 1288.29 1282.75 1741.53 1915.68
Expenditure -1126.65 -1116.37 -1562.19 -1718.94
Operating profit 161.64 166.38 179.34 196.75
Interest -18.70 -13.81 -22.35 -20.34
Gross profit 142.94 152.57 156.99 176.41
Depreciation -8.91 -6.29 -6.32 -6.95
Profit Before Tax 134.03 146.28 150.67 169.46
Tax -34.78 -25.35 -37.37 -39.82
Profit After Tax 99.25 120.93 113.30 129.64
Equity capital 58.40 61.62 86.19 86.19
Face Value 10.00 10.00 10.00 10.00
EPS 16.99 19.63 13.15 15.04
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Key Ratio
Particulars FY10 FY11 FY12E FY13E
No. of shares (in mn) 5.84 5.84 8.62 8.62
EBIDTA % 12.04% 12.49% 11.68% 11.84%
PBT % 10.10% 10.83% 10.14% 10.37%
PAT % 7.47% 7.93% 7.81% 7.99%
P/E ratio (x) 5.13 3.33 3.67 3.09
ROE - % 23.69% 26.62% 25.89% 23.51%
ROCE - % 33.74% 41.24% 38.53% 34.87%
Debt Equity Ratio 0.17 0.06 0.04 0.04
EV/EBITDA (x) 3.18 2.12 2.45 2.09
Book Value (Rs.) 172.90 236.75 220.81 288.66
Price/Book Value 1.21 0.89 0.95 0.73
Charts: Net sales & PAT
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P/E Ratio (x)
Debt Equity Ratio
9
EV/EBITDA (x)
P/BV (x)
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Outlook and Conclusion
At the current market price of Rs.235.85, the stock is trading at 3.67 x FY12E
and 3.09 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.57.17 and Rs.67.86 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 32% and
35% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 2.45 x for FY12E and 2.09 x for
FY13E.
Price to Book Value of the stock is expected to be at 0.95 x and 0.73 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.271.00 for Medium to Long term investment.
Industry Overview
India’s oil and gas sector holds strategic importance in the economy as it meets
around 42 per cent of the country’s primary energy demand and contributes over 15
per cent to the gross domestic product (GDP). With an interesting mix of private and
government companies, the industry is scaling new heights in domestic and
international markets.
With a strong resource position, India ranks second (behind Australia and ahead of
Vietnam), in BMI’s upstream Business Environment ratings while the country shares
first place with China in BMI’s downstream Business Environment ratings. The
recently released BMI forecasts state that India will account for 12.4 per cent of Asia
Pacific regional oil demand by 2015, while satisfying 11.2 per cent of the supply.
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Due to increasing refining capacities, India is set to be a top exporter of petro-products
in Asia, surpassing South Korea. India’s exports of refined products stood at 0.95
million barrels per day (b/d) as of June 2011 and US$ 4.6 billion worth of petroleum
products were exported during July 2011.
Oil & Gas- Market Dynamics
Production and Consumption
According to the provisional production data released by the Ministry of Petroleum and
Natural Gas, dated August 2011,
• Crude Oil production for April-July 2011 was 12.858 million metric tonne (MMT),
as compared to the 11.985 MMT in April-July 2010.
• Natural Gas production during April-July 2011 was 16356.3 million cubic metres
(MCM).
• During April-July 2011, 57.01 MMT of crude oil was refined, compared to 54.33
MMT refined during corresponding period in 2010.
State oil firm Oil & Natural Gas Corporation (ONGC) has the onus to maximize
domestic oil production, which in 2010 stood at 909,000 b/d of estimated average.
Due to incredible efforts made by ONGC and UK-based Cairn Energy, BMI predicts oil
production at around 1.2 million b/d by 2013 in its report for Q3 of 2011.
Oil consumption in India is projected to enhance by 4-5 per cent per annum to 2015,
indicating a demand of 4.01 million b/d by 2015.
Diesel & Petrol
International Energy Agency (IEA) forecasts an increment of 3.8 per cent in India’s fuel
demand led by diesel and petrol (gasoline). Diesel satisfies about 40 per cent of fuel
consumption in India. Its demand is expected to increase to 1.37 million b/d in 2011
rising by 5.8 per cent and further to 1.44 million b/d in 2012, increasing by 5.5 per
cent.
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Demand for petrol is expected to expand by 7.6 per cent (363,000 b/d) in 2011 and
eventually by 6.7 per cent (388,000 b/d) in 2012. For FY12, the ministry of petroleum
anticipates a growth of 4.6 per cent in the sale of oil products.
Gas
Global consultancy firm McKinsey anticipates that natural gas demand in India is
expected to increase from current 166 million standard cubic meters per day to 320
million standard cubic meters per day by 2015.
Moreover, BMI’s report for Q3 2011 states that India’s share (in the Asian pacific
region) of gas consumption in 2010 was an estimated 10.9 per cent, while its share of
production is estimated at 11.1 per cent. BMI expects that the country’s share of gas
consumption would reach to 11.7 per cent by 2015 while that of supply would stand
at 13.1 per cent.
Gas consumption is expected to increase from an estimated 55 billion cubic metres
(BCM) in 2010 to 76 BCM in 2015, while domestic production is anticipated to
increase from around 45 BCM in 2010 to at least 73 BCM in 2015.
Oil & Gas - Key Developments and Investments
Indian oil companies are present in around 20 countries worldwide. According to the
Petroleum Ministry, India's public sector enterprises have invested around Rs 64,832
crore (US$ 14.5 billion) for acquiring oil and natural gas exploration and production
assets abroad.
In a deal entailing largest ever foreign direct investment (FDI) in India, Reliance
Industries Limited has sold 30 per cent stake in its 21 oil & gas blocks, including the
showcase Andhra offshore gas field, to BP (formerly British Petroleum) for over US$ 7
billion.
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State run Navratna explorer Oil India is planning over expansion and diversification
and is also contemplating to enter city gas distribution. The company has set aside
about 52 per cent of surplus funds for exploration activities in future.
Oil India Ltd (OIL) along with its partner GeoGlobal Resources from Barbados has
decided to drill 3 wells in financial year 2012-13 as a part of its commitment to drill 12
wells in the east coastline of the 549 sq km Krishna Godavari block on the eastern
coast of India. GeoGlobal holds 10 per cent stake in the block.
In order to solidify its position in southern India, GAIL India has entered joint venture
(JV) agreements with the state entities of Kerala and Karnataka.
Its agreement signed with Kerala State Industrial Development Corp (KSIDC) states
that GAIL would be providing compressed natural gas (CNG) to automobiles and piped
cooking gas to households, commercial establishments and industries in Kerela. GAIL
Gas Ltd would hold 26 per cent stake while KSIDC will be holding 24 percent. The
remaining 50 per cent shares will be kept reserved for strategic partners, financial
institutions (Indian or international) and non-Government companies.
Oil & Gas - Government Initiatives
• New Exploration Licensing Policy (NELP), implemented by government, permits 100
per cent FDI for small and medium sized oil fields via competitive bidding.
• Public-private partnerships as well as only private investments can foray into the
refining sector. In case of an Indian private company, 100 per cent FDI is allowed.
• 100 per cent FDI is allowed for petroleum products and pipeline sector as well as
natural gas/LNG pipeline, for infrastructure related to marketing of petroleum
products, market study of formulation and investment financing.
• Minimum 26 per cent equity is covered over five years, in case of trading and
marketing.
• S Jaipal Reddy, Minister of Petroleum and Natural Gas has asserted in a recent
meeting that the government is determined to protect the interest of common man
while providing quality petroleum products at reasonable prices. He indicated that
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with a view to reduce burden on consumers as well as oil marketing companies
(OMCs), the government has eradicated the Customs Duty on Crude Oil and
trimmed Customs Duty on petroleum products by 5 per cent. Excise Duty on diesel
was also reduced by Rs 2.60 (US$ 0.056) per litre.
Oil & Gas - Road Ahead
India will be adding refining capacity of close to 800,000 b/d till 2013.
The boost in refining capacity will be initiated by BPCL and its partner with a 120,000
b/d refinery coming up at Bina in Madhya Pradesh. Later in 2011, HPCL and Mittal
will commission an 180,000 b/d plant at Bathinda in Punjab.
Essar Oil will be expanding its capacity of Vadinar refinery from 300,000 b/d to
375,000 b/d in 2012, while Nagarjuna Oil and Indian Oil will be adding capacities of
120,000 b/d and 300,000 b/d, respectively, by 2012-13.
______________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
15
Firstcall India Equity Research: Email – [email protected]
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