Panama Petrochem Ltd - Rs 90.00

Established in 1975, Panama Petrochem Ltd (PPL) is one of India’s leading manufacturers and exporters of petroleum specialty products. Infact it manufactures more than 80 product variants used across 6-7 broad industry segments. The product portfolio of the company consists of transformer oil, liquid paraffin, petroleum jelly, cable jelly, ink oil, rubber process oil, and antistatic coning oil. It even has collaboration with Lubcon, Germany for distribution of their specialized products as well. Thus PPL caters mainly to industries like power, cosmetics, pharma, cables, resins, textiles, rubber, and other industrial oil. The liquid paraffin and petroleum jelly forms the core ingredient and base for most of the pharmaceutical & cosmetic products such as body lotions, hair care products, hand and skin creams, lip-care sticks, foot creams apart from all the dermatological preparations. On the other hand company’s other major product i.e. transformer oil is manufactured from imported base stocks for power and distribution electrical apparatus such as power transformers, capacitors, switch fears, circuit breakers and allied equipments. PPL’s clientele includes BPCL, Micro Inks, Alok Industries, Merck, Cipla, Government Ordinance factories to name a few. The products are usually manufactured according to the client’s individual specifications, thus getting lot of repeat orders from the clients. It also caters various power generation boards and atomic research centers with their required products.

PPL has four manufacturing facilities spread across Ankleshwar (Gujarat), Daman (Union Territory), Marol (Mumbai) and Taloja (Maharashtra) with total combined installed capacity of 69000 MTPA. Apart from being a renowned company domestically, PPL also regularly exports to different countries like USA, UK, Europe, Middle East, Australia, African Sub-continent, South East Asia etc. Currently it derives round about 25% to total revenue from exports. In order to take the benefit of favorable dollar rate and lucrative margin, company is trying hard to increase its export revenue and presence in major markets like USA, Africa, Europe and Asia. Here in India, its Daman plant was enjoying tax exemption which ceased during last year. Hence PPL is contemplating to set up a Greenfield plant at another tax free zone like Uttarakhand or Baddi. At the same time, it has also gone for an inorganic growth and has acquired a related private company called “Mobil Petrochem”. It has finalized the share swap ratio as one share of PPL for every two shares held in Mobil Petrochem. It has even got the court approval and is proceeding with allotment and merger formalities. As the details of Mobil Petrochem is not available publicly - being a pvt company, its difficult to say whether the merger is EPS accretive or dilutive. But it seems the promoter holding may go up post merger. Meanwhile, company has developed a new product called Mining Oil which is still in its testing stage and is soon expected to be introduced in the market for the consumption in the booming mining industries.

Being a petroleum product company, the major raw material consumed by the company is Base Oil which is imported. And notably, raw material constitutes 90% of the total production cost. Thus the drastic fall in crude oil prices helped the company to some extent to improve its operating margin by 300 basis point to above 12% from 9% last fiscal. The price of company’s product also fell accordingly, but still it has reported encouraging performance till date. It is yet to declare it March’09 quarter nos. But even for nine months ending Dec’08, it has clocked whopping 70% jump in sales to Rs 299 cr but only 40% increase in PAT to Rs 18.50 cr due to higher tax provisioning. Hence it has already clocked an EPS of Rs 39 till date on current equity of Rs 4.76 cr. So for the entire FY09 it may report sales of Rs 375 cr and PAT of Rs 22 cr on conservative basis i.e. EPS of Rs 46 on current equity. However the equation may change post merger from Q1FY10. In the meantime company is expected to declare 50% dividend which gives a yield of 5% at CMP. Investors can buy at sharp declines

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