Confidence Petroleum Ltd is a dominant player in the private LPG space. It is into cylinder manufacturing, LPG bottling, marketing and distribution.
Confidence Petroleum Ltd is a dominant player in the private LPG space. It is into cylinder manufacturing, LPG bottling, marketing and distribution. It enjoys a strong customer base, both from the public sector undertakings as well as the private sector, including BPCL, HPCL, IOC, Reliance and Shell. It is expanding product offerings with planned CNG and auto-LPG cylinder manufacturing facilities and LPG-dispensing stations. It has forayed into ethanol segment.
Business: Confidence’s business can be broadly classified into three segments:
- Manufacturing of cylinders
- Marketing of liquefied petroleum gas (LPG)
- Bottling and distribution of LPG cylinders
Manufacturing of cylinders: Confidence enjoys 35% market share in the space. Manufacturing capacity is 40 lakh LPG cylinders per annum, through five facilities — two in Mumbai and one each at Hyderabad, Nagpur and Saoner. It has capabilities for repairing and testing of cylinders, as cylinders have to undergo compulsory testing after 5 years.
It is foraying into CNG and auto-LPG cylinder manufacturing with facilities in Uttarakhand and Visakhapatnam.
Commercial LPG marketing division: Commercial market for non-subsidised, packed LPG for industries, hotels, restaurants etc is huge and growing exponentially.
Confidence is a market leader, marketing to commercial and industrial users through a network in 21 states.
With a growing number of vehicles running on LPG, Confidence is installing LPG dispensing stations. It also manufactures auto-LPG cylinders for four- and two-wheelers at the Nagpur plant.
It has an LPG projects division to undertake turnkey projects for installation of LPG/ propane related facilities. It had entered into 50:50 joint venture with US-based Energtek, the world leader in automotive cleantech technology, which has successfully developed Absorbed Natural Gas (ANG) technology for supply of natural gas.
LPG bottling division: Confidence has 42 bottling plants and 4 blending plants in 19 states. These are located at strategic locations and help oil majors save on transportation costs. It is the only player having MDRA rating II, that is required for tender qualification.
Investment rationale: Total market size for cylinders is 24 crore. Add to this is replacement demand — cylinders must be replaced after 7 years. Confidence is boosting LPG cylinder manufacturing capacity from 40 lakh to 50 lakh cylinders by 2010-11. It acquired a unit in Baroda, with capacity of 12 lakh cylinders pa for export.
The foray into CNG and auto-LPG cylinders is a high margin (25%) business. Further, the Uttarakhand facility will enjoy tax benefits and the Vizag facility falls in an SEZ, and cylinders made here will be exported.
It is also installing a CNG cylinder manufacturing unit with 18 lakh capacity near Mumbai for domestic and overseas markets.
Confidence plans to add 52 LPG bottling plants, taking the total number to 100. The company enjoys over 90% market share of bottling.
It is setting up 100 auto-LPG dispensing stations in eight states, of which, 40 will be completed by March.
Confidence is also present in the ethanol space and has acquired two companies in Maharashtra, with a combined capacity of 54,000 kilo litres pa and crude oil distillation capacity of 12,000 kl pa.
The JV with Energtek will allow Confidence to market ANG technology in India and Southeast Asia. Two customers have already been tied up; revenues are expected to accrue in 2009-10.
Concerns: Being a third-party service provider, Confidence largely depends on oil majors, especially PSU oil marketers. It is a closely-held family concern with no history of capital market track record.
Valuations: Topline grew a robust 22.03% y-o-y at the end of Q3, to Rs 52.21 crore. But high raw material prices seared margins. Operating and profit margins at 8.88% and 8.33% respectively, were reduced to less than half of last year. With steel prices reducing significantly, margins are expected to grow well from Q4. Demand for LPG cylinders is seen up. Bottling activities are also on the rise.
Add to this the capacity expansions and new forays, which will all drive revenue and profits. Thus, Confidence is a good addition to portfolio with attractive valuations.
Disclosure: The writer does not hold any shares in the company
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