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SYNOPSIS

Panama Petrochem Ltd. established

in 1975 is one of India’s leading

manufacturers and exporters of

petroleum specialty products.

During the quarter ended, the robust

growth of Net Sales is increased by

78.03% Rs. 1736.30 million.

The company manufactures more

than 80 product variants vital for

Inks and Resins, Textiles, Rubber,

Pharmaceuticals, Cosmetics, Power,

Cables and other different industrial

purposes.

Panama’s business is spread across

India in the form of four

manufacturing plants at Ankleshwar

(Gujarat), Daman (Union Territory),

Marol (Mumbai) and Taloja (Dist.

Raigadh).

Net Sales and PAT of the company

are expected to grow at a CAGR of

32% and 35% over 2010 to 2011E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 4640.68 579.51 368.05 63.02 3.33

FY 12E 6311.32 737.31 492.72 57.17 3.67

FY 13E 7321.14 866.58 584.86 67.86 3.09

Stock Data:

Sector: Oil & Gas

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 290.00/182.05

Volume (2 wk. Avg.) 8942.00

BSE Code 524820

Market Cap (Rs in mn) 2032.9

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX Panama Petrochem

C.M.P: Rs. 235.85 Target Price: Rs. 271.00 Date: Dec 07th 2011 BUY

Panama Petrochem Ltd. Result Update: Q2 FY 12

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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 (%)

Panama Petrochem 235.85 2032.9 63.02 3.33 0.89 50.00

SAH Petroleum 26.00 114.40 0.65 40.00 0.93 1.00

Castrol India 414.00 10237.42 19.42 21.32 18.50 150.00

Gulf Oil Corp. 53.00 525.47 6.28 8.44 1.43 100.00

Investment Highlights

Q2 FY12 Results Update

Panama Petrochem Ltd. has reported net profit of Rs 113.30 million for the quarter

ended on September 30, 2011 as against Rs 108.62 million in the same quarter last

year, an increase of 4.31%. It has reported net sales of Rs 1736.30 million for the

quarter ended on September 30, 2011 as against Rs 975.31 million in the same

quarter last year, a rise of 78.03%. Total income grew by 78.35% to Rs 1741.53

million from Rs.976.49 million in the same quarter last year. During the quarter, it

reported earnings of Rs 13.15 a share.

Quarterly Results - Standalone (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 1736.30 975.31 78.03%

PAT 113.30 108.62 4.31%

Basic EPS 13.15 18.60 -29.33%

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Break up of Expenditure

� Declaration of Interim Dividend

Interim dividend declared @ Rs. 3/- per equity share (30%) of Rs. 10 each for the

financial year 2011-12.

Company Profile

Panama Petrochem established in 1975 is one of India’s leading manufacturers and

exporters of petroleum specialty products. The petroleum products are in great

demand for various industries like inks and resins, textiles, rubber, pharmaceuticals,

cosmetics, power, cables and other different industrial purposes.

Panama Petrochem manufactures more than 80 product variants vital for nearly six to

seven industry segments. It is in collaboration with Lubcon, Germany for distribution

of their specialized products. Last but certainly not the least; they also furnish various

Power Generation Boards and Atomic Research Centers with their required products.

The company business is spread across India in the form of four manufacturing plants

at Ankleshwar (Gujarat), Daman (Union Territory), Marol (Mumbai) and Taloja (Dist.

Raigadh). The company is in the field of petroleum speciality oils and solvents for

more than 25 years. Its Ankleshwar Plant is one of the best of its kind in terms of

huge production capacity with large storage tanks and warehouses.

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The company’s new and more value-added products are served to the niche market

and stay always abreast of their competitors. They have procured all the required

statutory approvals that permit them to supply their various oil products to the

different industries.

Global presence

By exploring international markets, Panama Petrochem continuously aims to bring

about a rise in the exports. They export a variety of their products like Petroleum Jelly,

Liquid Paraffin, Transformer Oil and Rubber Process Oil to different countries like

USA, UK, Europe, Middle East, Australia, African Sub-continent and South East Asia

etc. Good infrastructure for the company and their state-of-the-art Research and

Development center help them to simultaneously cater to domestic and international

needs.

Products

Product range of the company includes:

• White Oil

• Turbine Oil

• Spray Oil and Hydraulic Oil

• Transformer Oil

• Petroleum Jelly

• Liquid Paraffin

• White Soft Paraffin

• Petrolatum

It also manufactures Ink Oils (Solvents for Printing Inks & Resins) of various grades.

Its Ink oils find good market in different printing ink & resin manufacturers. Recently

the company has developed wax blends & highly aromatic petroleum oils for rubber

industries, which are well accepted by some of the leading tyre manufacturers.

Specialty Products

The company provides their petroleum specialty products to:

• Cosmetic Industries

• Pharmaceutical Industries

• Ink and Resins Industries

• Transformer MFG Industries

• Rubber and Tyre Industries

• Textile Industries

• Cable MFG Industries

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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 3202.37 4640.68 6311.32 7321.14

Other Income 63.29 42.88 30.44 31.97

Total Income 3265.66 4683.56 6341.77 7353.10

Expenditure -2880.08 -4104.05 -5604.46 -6486.53

Operating Profit 385.58 579.51 737.31 866.58

Interest -49.00 -53.36 -69.37 -75.61

Gross profit 336.58 526.15 667.95 790.97

Depreciation -13.26 -23.37 -28.04 -31.41

Profit Before Tax 323.32 502.78 639.90 759.56

Tax -84.12 -134.73 -147.18 -174.70

Profit After Tax 239.20 368.05 492.72 584.86

Equity capital 58.40 58.40 86.19 86.19

Reserves 951.34 1324.21 1816.93 2401.79

Face Value 10.00 10.00 10.00 10.00

EPS 40.96 63.02 57.17 67.86

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E

Description 3m 3m 3m 3m

Net sales 1280.91 1280.13 1736.30 1909.93

Other income 7.38 2.62 5.23 5.75

Total Income 1288.29 1282.75 1741.53 1915.68

Expenditure -1126.65 -1116.37 -1562.19 -1718.94

Operating profit 161.64 166.38 179.34 196.75

Interest -18.70 -13.81 -22.35 -20.34

Gross profit 142.94 152.57 156.99 176.41

Depreciation -8.91 -6.29 -6.32 -6.95

Profit Before Tax 134.03 146.28 150.67 169.46

Tax -34.78 -25.35 -37.37 -39.82

Profit After Tax 99.25 120.93 113.30 129.64

Equity capital 58.40 61.62 86.19 86.19

Face Value 10.00 10.00 10.00 10.00

EPS 16.99 19.63 13.15 15.04

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

No. of shares (in mn) 5.84 5.84 8.62 8.62

EBIDTA % 12.04% 12.49% 11.68% 11.84%

PBT % 10.10% 10.83% 10.14% 10.37%

PAT % 7.47% 7.93% 7.81% 7.99%

P/E ratio (x) 5.13 3.33 3.67 3.09

ROE - % 23.69% 26.62% 25.89% 23.51%

ROCE - % 33.74% 41.24% 38.53% 34.87%

Debt Equity Ratio 0.17 0.06 0.04 0.04

EV/EBITDA (x) 3.18 2.12 2.45 2.09

Book Value (Rs.) 172.90 236.75 220.81 288.66

Price/Book Value 1.21 0.89 0.95 0.73

Charts: Net sales & PAT

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P/E Ratio (x)

Debt Equity Ratio

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EV/EBITDA (x)

P/BV (x)

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Outlook and Conclusion

At the current market price of Rs.235.85, the stock is trading at 3.67 x FY12E

and 3.09 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.57.17 and Rs.67.86 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 32% and

35% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 2.45 x for FY12E and 2.09 x for

FY13E.

Price to Book Value of the stock is expected to be at 0.95 x and 0.73 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.271.00 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 maximize

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 Q3 of 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

rising by 5.8 per cent and further to 1.44 million b/d in 2012, increasing by 5.5 per

cent.

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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 Kerela. 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 man

while providing quality petroleum products at reasonable prices. He indicated that

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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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