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Dec 01, 2006, 02.44 PM IST
Deepak Agrawal of Impetus Advisors is of the view that Confidence Petroleum can touch Rs 15.
Agrawal told CNBC-TV18, "Confidence Petroleum India in a penny stock because itís Re 1 pad-up had it been a Rs 10 pad-up it wouldnít have been a penny stock. It is into three business segments; they are into bottling up LPG cylinders, they make LPG cylinders and they also market LPG to commercial and industrial segment. Earlier this company was into very little business of bottling of LPG they have recently merged their privately closely held company into the listed company. On a consolidated basis this company made about Rs 18 crore of revenue and Rs 1 crore of profit last year on the merged basis."
He further added, "Going forward the company is going to expand rapidly. Their LPG bottling business wherein they do the bottling for the PSU oil companies like HPCL , BPCL , IOC and they also do it for Reliance Industries thatís going to be more than double very shortly. They have about 22 operational LPG bottling plants, which we expect that will go to about 48 plant by the end of this year. They already have 38 plant now but 15-16 plant are currently not operational and they have ten more plant in the pipeline. They recently started one bottling plant for HPCL in Himachal Pradesh and they are setting up one more plant in Baddi again for HPCL."
"There will be more than 100% growth in this segment within this fiscal itself. They even have cylinder-manufacturing unit near Mumbai where they have about 600 cylinders per day, which they have already ramped-up to seven fold to about 4000 cylinders."
"They have got an order of about Rs 47 crore in September from IOC and HPCL for cylinders. So thatís another segment where there will be an exponential growth. The third business segment which is a recent addition they have been doing very little of that business which is LPG marketing, there are lot of subsidies so thatís not the viable business for the private sector. But they have entered into commercial segment wherein they are procuring LPG from Reliance and they are distributing it in Maharashtra to Reliance bottlers as well as lot of commercial units, they supply both in cylinders and bulk. So thatís another segment."
"We expect that all these three business segments will contribute equally to their bottomline going forward. So the kind of ramp-up that we see in terms of revenues and earnings because of these developments - they have made Rs 1.1 crore of profit in FY06. In the first six months on a consolidated basis they made a profit of Rs 2 crore, in the second half we expect that they will do about Rs 6 crore of profit and the total revenue estimated this year would be around Rs 100 crore."
"Next year i.e. FY08 they should do about Rs 180-190 crore in revenues and about Rs 30 crore in terms of bottomline. At, Rs 30 crore next year it will have an EPS of about Rs 1.5 and we have given a PE of around Rs 10 so, that sets a target of about Rs 15. The PE of Rs 10 is based mainly on a comparison with Everest Kanto and we have valued it at a discount of about 26% to Everest Kantoís valuation. Given that there is a lot of difference in the product mix as well as the size, scale and the management."
"We think that PE of Rs 10 is a reasonable for this company given the kind of growth etc. so we set a target of Rs 15, which might be just initial target because the company is also getting into CNG cylinder manufacturing, they have a plan to set-up a CNG plant, which I believe the construction will start sometime in January. So that will add to their revenues and growth from FY09 onwards. So none of the company is moving of their valuations so the valuation should also improve going forward. "
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