Confidence Petroleum - HBJ Capital’s “CSF” pick for the month of Apr’1

Confidence Petroleum India Ltd. (BSE CODE – 526829 ): 

Confidence Petroleum India Ltd. (BSE CODE – 526829 ) HBJ Capital, India Web: www.hbjcapital.com E-Mail: info@hbjcapital.com Call: +91 98867 36791 HBJ Capital’s “CSF” pick for the month of Apr’11 Asia’s Largest LPG Cylinder Manufacturer

Best Buying Price…: 

Best Buying Price… 2 Phase Buying Strategies Suggested…. 1 st Phase : Buy at the current price range Rs17-19 [60%*] 2 nd Phase : Add if the price falls down to Rs 13-15 [40%*] *investment in terms of value

Slide 3: 

Confidence Petroleum Ltd. – Overview

An Introduction: 

An Introduction Confidence Petroleum Ltd (BSE: 526829) established in 1993, is positioned as the largest LPG cylinder manufacturer in Asia. The company makes environment friendly fuels available at every doorstep and across highways. Confidence Petroleum has 51 bottling plants, 9 fuel manufacturing units, 75 ALD’s and 55 LPG transport-capable vehicles across 19 states. The company:- is Asia’s largest LPG cylinder manufacturer with an installed capacity of 40 lakhs unit per annum is Largest private LPG bottler and bottling assistance provider in India has a ~20% market share in the Indian LPG cylinder manufacturing space and 95-98% market share in the non-captive LPG bottling space Provides bottling solutions for LPG to BPCL, HPCL, IOC, GAIL and Reliance Group also has a global presence through its Indonesian subsidiary PT Surya GoGas engaged in LPG bottling and cylinder manufacturing also operates turnkey projects in Africa and West Indies relating to LPG/ Propane plants and piping

Company’s Division..: 

Company’s Division..

Contd..: 

Contd.. LPG Cylinder Manufacturing Company has a manufacturing facility with a production capacity of 40 lakh units 9 units in India and one unit in Indonesia Commands ~ 20% share in LPG cylinder market in India Robust growth commanded both organic and inorganic way The division currently contributes 23% of the total revenues LPG Blending, Bottling and Marketing Refilling cylinder for major PSUs in India and is considered one of the Core businesses The division has 49 bottling plants in India and 2 in Indonesia Also offers blending of butane and propane for LPG formulation for commercial and industrial customers Marketing LPG under the brand “GasPoint” Outsourcing “job work” for the oil and gas majors The division contributes ~66% of the total revenues

Contd..: 

Contd.. CNG/high pressure gas cylinder manufacturing Production facility at Vizag with a capacity of 3,00,000 cylinder per annum Division manufactures complete range of high-pressure cylinders used in medical oxygen, industrial gases, nitrogen cylinders, etc A lot of new natural gas import terminals are coming up in Gujarat, Tamil Nadu and Andhra Pradesh likely to generate huge demand Second plant manufacturing composite cylinders to be commissioned in Uttaranchal in 2011-12 Other Activities Other business in which company has small but vital presence includes project division, gas meters, crack crude oil, ethanol and fuel logistics Recently entered into a JV with Zhejiang China Instruments & Meter Co, China for technology and redistribution of Gas meters in India Has installed capacity of crack crude oil of 20,000 metric tonnes per annum Available capacity for 36,00,000 litres of ethanol production per annum

Contd..: 

Contd.. ALDS (Auto LPG Dispensing Stations) Entered ALDS business in October 2008 Promotes division through its 100% subsidiary Confidence GoGas ltd As of January 2011, 65 ALDS in operation and plan to roll out 500 by 2013 Low Break even – point per location of ~12000 litres sale per month (current average monthly sales of 59,000 litres across the state) Potential to increase the revenue as initiatives of government to convert old auto rickshaw with new LPG model EBITDA margins impacted by increased marketing and site selection spend

Indonesia – A Key Market!: 

Indonesia – A Key Market! Potential to be one of the key market outside India Operates 1.5 million units per annum cylinder manufacturing unit with 2 bottling plants 8 more bottling plants planned to cater the growing demand Currently operating with 70% utilization and contributed revenues of Rs 207.50 in FY 10 Expected to increase the sales from ~ 5 lakh tonnes in FY 10 to about ~ 9 lakh tonnes by FY 13 Contract with the largest public sector oil majors in the country “Pertamina” for bottling 2000 metric tonnes per month per plant Company is working with the Indonesian government to enhance the LPG reach mechanism to its rural sector

Clean Fuel Industry – An Opportunity: 

Clean Fuel Industry – An Opportunity In a recent report, the World Health Organization (WHO) indicated that an annual investment of USD 13 billion would halve the number of people cooking with solid fuels worldwide by 2015, and supplying them with LPG would lead to a payback of USD 91 billion annually. The government’s initiative to implement the Rajiv Gandhi Gramin LPG Vitran Yojana for supplying LPG connections to deep rural areas would create a huge demand for LPG in India. The PSU majors would require appointing 3,000 LPG dealers in rural areas. Over 13 million LPG-fuelled and 8.5 million CNG-powered vehicles are now in use around the world ( with the Asian region accounting for almost 51 % or 4.4 million vehicles ), representing and annual global growth of more than 30% over FY 06 ( 5.7 million vehicles ). An extremely low penetration of natural gas vehicles – 6.1 % world over, 5.9% in Asia and CIS and 2% for high-growth markets like India and China – signifies a growing opportunity , going forward. Auto LPG also accounts for 40-50% savings as compared with petrol. The population of CNG run vehicles is slated to go up to a level of 50 million by 2020 and to a level of 100-200 million by the year 2030 as the Government has made it mandatory for public transport vehicles to operate on CNG in metro cities in India

Clean Fuel Industry – An Opportunity: 

Clean Fuel Industry – An Opportunity Alternate fuel offers mileage that is comparable with petrol, costs much less and offers attractive payback period for vehicles running on petrol. Auto LPG is a greener fuel compared to petrol and diesel due to lower emission of nitrogen dioxide and lower sulphur content. Currently OEM viz. Tata motors, Ashok Leyland, Maruti Suzuki, Hindustan Motors and Hyundai are offering CNG vehicles . The Car models with LPG variant includes Maruti’s 800, Wagon R and Omni; Hyundai’s Santro and Accent; Chevrolet’s Spark and Tata’s Indica Xeta . Strong opportunities foreseen in industrial and commercial space

Profit/Loss Statement: 

Profit/Loss Statement The sales of the company have been growing at an exponential rate. The raw material cost as a % of sales has increased substantially on account of increase in operations for LPG Marketing. However the economies of scale helped the company record higher operating margins. The depreciation cost for FY 10 stood at Rs 14 crore, which resulted in lower NPM for FY 10.

Balance Sheet Statement: 

Balance Sheet Statement Share Capital: Over the last few years, the company has not diluted it’s equity which augurs well for the shareholders. Working Capital: T he company is keeping a relatively good control over working capital. The working capital as a percentage of sales of the company has come down. Debt: Increased in last three years but still under control and maintains healthy debt/equity ratio Gross Block: The Gross Block of the company has increased from 86 crore at the end of Mar’08 to Rs 236 crore at the end of Mar’10. The company has been expanding it’s capacity very aggressively.

Key Ratios.. : 

Debt/Equity ratio at 0.5 is a very good sign as it gives enough room to leverage its balance sheet The company Maintains a healthy Current ratio at 2.4. ROCE and EBITDA margins have shown significant growth over the years which depicts the optimum utilization of resources. Cost per cylinder Stands at Rs 870 for the company against the global benchmark of Rs 910 which in return helps company maintain healthy margins Key Ratios..

Peer Comparison.. : 

Peer Comparison.. The closest peer to the company is the LPG cylinder manufacturer Everest Kanto Company maintains a healthy ROE (%) of 18.2% compared to Everest Kanto’s 0.1% in FY 10 EV/ EBITDA ratio of the company stands at 9.5x on FY10 earnings whereas Everest Kanto stands at 21.4X. Confidence Petroleum is currently trading at P/BV of 2.8 while the Industry average is of 3 The stock is currently trading at P/E of 8.8x FY 11 E and 5.8x FY 12 E which is really cheap compared to its peers which are trading at quite high valuations.

Shareholding Pattern: 

Shareholding Pattern The Promoters holding has remained more or less constant at 46% during the last five years. FII increased their stake from 0.15% to 2.63% in last five years. In last three months the promoter’s have shown active interest in increasing their holding in the company

Opportunities .. Key Risks..: 

Opportunities .. Key Risks.. Establishing 500 ALDS across India in next two years Strengthening LPG bottling business through the establishment of 50 facilities in next two years Commissioning 10 new LPG bottling plants in Indonesia over next two years Proposed dismantling of subsidies on domestic LPG cylinders for high income group will generate incremental revenues from cylinders Leveraging expertise in natural fuel storage and transportation in assistance to third party Initiatives by Government to promote alternate fuels Several other private players have ambitious plan to add ALDS to their kitty which increases the competition substantially Considering the company’s plan to set up 500 ALDS by 2013; non availability of funds may hamper the plan House hold switching to PNG may effect Company’s LPG cylinder manufacturing business Capacity utilization may remain a key concern over next three period as robust growth is followed by heft competition Rising interest cost in the coming years may effect negative on the margins

Thank you: 

Thank you