Panama Petrochem

05 January 2011 BUY REPORT

Key Data Company Description:
PPL came out with a public issue of equity shares in January 1995 to expand the
BSE Code 524820
capacity by nearly four times and to add value added products like liquid paraffin,
NSE Symbol - heavy petroleum jelly and greases. It had a technical collaboration with Lubcon
Reuters Code PAPT.BO Lubricant Consultants, Germany for developing new products.
Bloomberg Code PNPC IN PPL’s manufacturing facilities are situated at Ankleshwar and Daman in Gujarat;
Sensex 20301 and Panvel (Thane District). Exports constitute roughly 22 per cent of sales. PPL
CMP (`) 264 supplies its specialty oil products to wide range of industries including
Target Price (`) 350 pharmaceuticals, ink, cosmetics, textiles, power and telecom and mining, which are
high growth industries.
Face Value (`) 10
Mcap, (` in crore) 153 Investment Rationale:
52 week H/L (`) 320/142 PPL manufactures more than 80 product variants used across 6-7 broad industry
segments. The products include petroleum specialty products like agricultural spray
2 Wk Avg Qty 11030
oil, dewatering fluid, white oil, transformer oil and liquid paraffin (IP), petroleum jelly,
Share holding, Sep 2010 % Holding liquid paraffin, and rubber process oil. Its products are marketed under the Panol
brand name.
Promoters 57.8
Foreign Collaborators 0 PPL is already supplying its products to leading global players like Micro Inks
(global leader in inks), Sakata Inks, Bayer CropScience and Merck etc. PPL has
DIIs 0.2
proved its capabilities and strengths in product portfolio.
Foreign Corp. Bodies 0.9
Bodies Corporate 4.1 PPL’s product portfolio is also supported by strong R&D back-up and through which
PPL has planned to introduce new products in specialty oil like mining oil, cable jelly
Public & Others 37.0 and transformer oil segments. PPL expects to earn higher margins on these
Total 100% products because most of these products would be import substitute, high growth
and monopoly/oligopolistic products.
Performance (%) 3M 6M 12M
Stock (PPL) -6.0 35.4 71.4 PPL plans to set up a new facility at Uttarakhand with an installed capacity of
40,000 tpa in phase I and phase II with additional 50,000 tpa. PPL’s total installed
BSE 200 -3.0 13.0 13.2
capacity with Uttarakhand plant would go up to 1, 59,000M tpa.
BSE 500 -3.3 12.5 13.3
PPL had been allotted a plot in Dahej SEZ admeasuring 9,375 sq. mtrs. It plans to
Key Financial (` crore) start the Phase I of the plant in Q4FY11 with Capex of `15 crore with 15, 000 tpa
Year End H1
FY10 FY11E FY12E capacity and the Phase II of the plant by thereafter with another Capex of `15 crore
March FY11 for the same15, 000 tpa capacity. For the above plans, PPL plans to tap the global
Sales 224.7 320.2 410.0 495.0 markets for ADR/GDR issue in the near future.
PBIDT 30.7 38.5 55.4 67.3 PPL acquired a privately held company called “Mobil Petrochem” thru share swap
Interest 2.5 4.9 5.5 6.0 deal. Thus with this acquisition, promoters holding shot up to 55% from 43% and
PBDT 28.2 33.6 49.9 61.3 company’s equity got expanded to Rs 5.8 cr from 4.8 cr. Recently, PPL has further
decided to merge another privately held company called “Monaco Petroleum Pvt
Dep 0.9 1.3 1.8 2.0
Ltd” through a equity swap deal.
Tax 7.5 8.4 14.0 16.0
19.8 23.9 34.1 43.3 PPL supplies its specialty oil products across the industries; it would be beneficiary
PAT
of rising demand from these industries. It is expected that PPL’s traditional products
Equity 5.8 5.8 5.8 like ink oil and coning oil would grow at a CAGR of 20% and 40% respectively over
Reserves 95.11 129.2 172.5 a period of FY11-FY14 and its new products like mining oil, transformer oil and
BV (`) 174.0 232.8 307.4 cable jelly oil would contribute approximately 8-12 per cent each to FY13E.
EPS (`) 34.1 41.2 58.8 74.7 The whopping proposed upstream investment of over `1, 00,000 crore in the Indian
OPM (%) 13.7 12.0 13.5 13.6 petrochemical industry in the next three to four years and `50,000 crore in
NPM (%) 8.8 7.5 8.3 8.7 downstream segment would trigger good demand for PPL’s products.
P/E 4.5 3.5 Indian economy is growing at a growth rate of 8-9 per cent and is likely to sustain
for next 3-5 years. The major investments lined up in the textile, mining, power,
telecom, printing, steel, petrochemicals and power infrastructure augurs well for the
future prospects of PPL.
Driven by PPL's strong product development capabilities, its product profile has
undergone a significant change with higher margin, value added products gradually
gaining higher share at the bottom line.
,

At the CMP of `264, the share is trading at a P/E of 4.5x on FY11E and 3.5x on
Vijay Dave
vijaydave@sunidhi.com FY12E. We recommend BUY with a target of `350 in the medium term.
Ph: 91-22-6636 9669
 Panama Petrochem

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