MULTIBAGGER STOCK RECOMMENDATION - PANAMA PETRO

 Panama Petrochem Code: 524820   CMP: Rs.188

Panama Petrochem  is one of India’s leading manufacturer and exporter of petroleum speciality products. In fact, it manufactures over 80 product variants used across 6-7 broad industry segments. It develops customised products as per client specification in the field of petroleum and feeds to various industries like printing ink, resin, cosmetics, rubber products, pharmaceuticals, engineering, texturising, chemicals including petrochemicals. It has five manufacturing units located in western India - Ankleshwar (Gujarat), Daman (Union Territory), Mumbai (Maharashtra), Taloja (Maharashtra) and Dahej (Gujarat). It also has a fully equipped R&D centre at its Ankleshwar unit where it formulates new and value-added products. Last fiscal, it set up a state-of-the-art manufacturing facility located in the SEZ at Dahej. Under Phase I, which got completed in August 2010, the company has built distillation & refining units with an installed capacity of 30,000 TPA to manufacture various petroleum fractions suitable to feed the requirements of the drilling & mining industries. Construction for Phase II with additional capacity of 70,000 TPA is yet to commence. Dahej is expected to rapidly grow to become a major logistics hub for the import & export of bulk liquids & containers, which will help the company to expand its business with international markets and reduce logistic costs. Its products are exported to over 40 countries. Importantly, the company focuses on niche speciality products with better realization, which enables it to pass on the incidence of higher input costs to its clients. Thus it was able to maintain its profit margin despite being vulnerable to volatile crude oil prices. To fund its Dahej plant expansion, the company had recently raised around Rs.62 crore via the GDR route at Rs.253.68 per equity share. This has diluted the equity by 40% to Rs.8.60 crore. But the whole amount raised is still lying idle in the bank and is yet to be deployed for expansion. Hence the benefit of this capital will accrue in future years although the equity dilution happened immediately. Recently, the company has reported poor performance for Q3FY12, because of which the stock is trading at its low. For FY12, it may clock a turnover of Rs.600 crore with net profit of Rs.35 crore i.e. an EPS of Rs.41 on its expanded equity. For FY13, it has the potential to register an EPS of Rs.65. At its market cap of Rs.150 crore, it’s grossly cheap and deserves much better valuation. A decent buy. Meanwhile, the management has also got the shares listed on the NSE from 30 September 2011 to improve the liquidity in the counter.