Savita Oil Technologies Ltd. - InvestmentGuruIndia

Savita Oil Technologies Ltd.
Result Update: Q1 FY 12
C.M.P: Rs. 532.00
Target Price: Rs. 601.00
Date: Oct. 15 th 2011 BUY
Stock Data:
Sector:
Oil and Gas
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 707.30/411.50
Volume (2 wk. Avg.) 991.00
BSE Code 524667
Market Cap (Rs in mn) 7768.26
Share Holding Pattern
SYNOPSIS
Savita Oil Technologies Limited,
formerly Savita Chemicals Limited, is
based in Mumbai, India which is
segmented in petroleum products and
wind power.
During the quarter ended, the robust
growth of Net Profit is increased by
65.81% Rs. 298.61 million.
Net Sales and PAT of the company are
expected to grow at a CAGR of 23% &
23% over 2010 to 2013E respectively.
1 Year Comparative Graph
Savita Group's R&D is one of the most
competent Research Centres in
Petroleum Specialties recognized by
the Dept. of Science and Technology,
Government of India.
Savita Oil Tech.
BSE SENSEX
Savita exports its products across the
globe and is certified with ISO 9001
Quality System & innovative
packaging like Flexitanks, ISOtanks
and optimized drum-stacking systems.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 15475.08 1925.73 1093.34 74.88 7.11
FY 12E 19034.35 2341.17 1363.03 93.35 5.70
FY 13E 22079.84 2702.99 1590.60 108.93 4.88
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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 (%)
Savita Oil Technologies 532.00 7768.26 74.88 7.11 1.97 150.00
BPCL 652.20 23699.09 19.44 33.72 1.69 140.00
Chennai Petro 201.90 3006.52 34.36 5.88 0.80 120.00
Goa Carbon 80.95 74.08 12.02 6.73 1.02 40.00
Investment Highlights
Q1 FY12 Results Update
Savita Oil Technologies Ltd. has reported net profit of Rs 298.61 million for the
quarter ended on June 30, 2011 as against Rs. 180.09 million in the same quarter
last year, an increase of 65.81%. It has reported net sales of Rs 4364.83 million for
the quarter ended on June 30, 2011 as against Rs 3287.50 million in the same
quarter last year, a rise of 32.77%. Total income grew by 32.66% to Rs 4386.88
million from Rs. 3306.75 million in the same quarter last year. During the quarter,
it reported earnings of Rs 20.45 a share.
Quarterly Results - Standalone (Rs in mn)
As At June-11 June-10 %change
Net sales 4364.83 3287.50 32.77%
PAT 298.61 180.09 65.81%
Basic EPS 20.45 12.33 65.81%
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Break up of Expenditure
Segment Revenue
Segment Revenue
(Rs. million)
Petroleum Products 4286.31
Wind Power 92.75
Other Unallocated 7.81
Net Sales/ Income from
Operations 4386.87
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Company Profile
Savita Oil Technologies Limited, formerly Savita Chemicals Limited, is an India-based
company. The segments of the Company are petroleum products and wind power. Its
petroleum products include Transformer Oils, White Oils/Liquid Paraffins and
Lubricating Oils. During the fiscal year ended March 31, 2010 (fiscal 2010), the
Company's Wind Power Plants situated in the states of Maharashtra, Karnataka and
Tamilnadu generated 64.0 MU against 55.4 MU.
Business Area
• Petroleum Energy
• Wind Power
• Petroleum Energy: This Sector consists of Transformer Oils, White Oils/Liquid
Paraffins and Lubricating Oils for Company. The main raw materials for all these
products are the Base Oils which are a refined fraction derived from Crude Oil. The
demand for Transformer Oils in India is generated and sustained by the overall
development and growth of the power generation and transmission infrastructure
within the country. The market for cosmetics, pharmaceuticals and personal care
products decides the demand for Liquid Paraffins and White Oils. The Automotive,
Industrial and Marine Sectors primarily constitute the Indian lubricant industry.
• Wind Power: The major source of power generation in India has always been coal
with some share from gas and hydro based power generation. Potential for wind
power in India has been increased to 48.5 GW by Ministry of New and Renewable
Energy (MNRE). Apart from addressing India’s issue of climate change and global
warming, renewable energy sources offer a hedge against future fossil fuel price
hike and volatility. Of all the renewable sources of energy, wind energy has had an
exponential growth in India. Technological maturity, a proven installed base, lower
set-up and running costs are the key factors for the dominance of wind technology
in the renewable energy mix.
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Research and development
A team of highly competent scientists and most sophisticated equipments provide
Savita the flexibility to develop and deliver tailor-made products to suit individual
customer's needs. Since the seventies, Savita Group's R&D is one of the most
competent Research Centres in Petroleum Specialties recognized by the Dept. of
Science and Technology, Government of India. This focus on R&D has paid rich
dividends in the form of 9 pioneering products ranging from Petroleum Sulphonates
and White Oils to Telecom Cable Filling Compounds.
International Business
The International Business Division of Savita Group was set up in 1993. The Savita
Group is today India's largest exporter of Petroleum Specialties Products.
Savita exports its products across the globe and is known for its customization, ISO
9001 Quality System and innovative packaging like Flexitanks, ISOtanks and
optimized drum-stacking systems. Today, Savita's global reputation is that of an
ethical & reliable company with an efficient distribution channels.
Product range of the company includes:
• Savonol: Liquid paraffin for pharmaceutical and cosmetic products.
• Transol: Transformer oil
• Savsol: Lubricants
• Savowax: Waxes
• Idemitsu: Automotive & Industrial lubricants
• Specialty wax emulsion: For leather finishings, Water based paints & printings.
• Vitagel: Optic Fibre Cable Filling Compound
• Technol: White oil
• Savogel: Petroleum Jellies
• Savofil/Savoflod: Cable Filling Compound
• Savox BW300: Emulsifiable (Oxidized) Polyethylene Wax
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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 11780.14 15475.08 19034.35 22079.84
Other Income 89.18 112.67 116.05 121.85
Total Income 11869.32 15587.75 19150.40 22201.70
Expenditure -10334.53 -13662.02 -16809.23 -19498.71
Operating Profit 1534.79 1925.73 2341.17 2702.99
Interest -46.74 -68.93 -74.44 -81.14
Gross profit 1488.05 1856.80 2266.72 2621.84
Depreciation -203.09 -252.96 -268.14 -289.59
Profit Before Tax 1284.96 1603.84 1998.58 2332.25
Tax -421.12 -510.50 -635.55 -741.66
Profit After Tax 863.84 1093.34 1363.03 1590.60
Equity capital 146.02 146.02 146.02 146.02
Reserves 3051.62 3805.53 5168.56 6759.16
Face value 10.00 10.00 10.00 10.00
EPS 59.16 74.88 93.35 108.93
6

Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E
Description 3m 3m 3m 3m
Net sales 4128.68 4327.87 4364.83 4844.96
Other income 28.86 29.97 22.05 24.26
Total Income 4157.54 4357.84 4386.88 4869.22
Expenditure -3658.59 -3807.82 -3866.51 -4265.99
Operating profit 498.95 550.02 520.37 603.23
Interest -15.21 -14.88 -17.60 -18.48
Gross profit 483.74 535.14 502.77 584.75
Depreciation -64.62 -64.62 -56.88 -59.16
Profit Before Tax 419.12 470.52 445.89 525.59
Tax -132.65 -143.85 -147.28 -167.93
Profit After Tax 286.47 326.67 298.61 357.67
Equity capital 146.02 146.02 146.02 146.02
Face value 10.00 10.00 10.00 10.00
EPS 19.62 22.37 20.45 24.49
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. of Shares (in mn) 14.60 14.60 14.60 14.60
EBITDA Margin (%) 13.03% 12.44% 12.30% 12.24%
PBT Margin (%) 10.91% 10.36% 10.50% 10.56%
PAT Margin (%) 7.33% 7.07% 7.16% 7.20%
P/E Ratio (x) 8.99 7.11 5.70 4.88
ROE (%) 27.01% 27.67% 25.65% 23.03%
ROCE (%) 45.07% 46.92% 43.20% 39.03%
Debt Equity Ratio 0.21 0.17 0.14 0.11
EV/EBITDA (x) 5.06 4.03 3.32 2.87
Book Value (Rs.) 218.99 270.62 363.96 472.89
P/BV 2.43 1.97 1.46 1.12
Charts:
Net sales & PAT
8

P/E Ratio (x)
Debt Equity Ratio
9

EV/EBITDA(x)
P/BV
10

Outlook and Conclusion
At the current market price of Rs.532.00, the stock is trading at 5.70x FY12E
and 4.88 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.93.35 and Rs.108.93 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 23% and
23% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 3.32 x for FY12E and 2.87 x for
FY13E.
Price to Book Value of the stock is expected to be at 1.46 x and 1.12 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.601.00 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 maximise
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 the third quarter of
(Q3)_ 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
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ising by 5.8 per cent and further to 1.44 million b/d in 2012, increasing by 5.5 per
cent.
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 Kerala. 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
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man while providing quality petroleum products at reasonable prices. He
indicated that 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.
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