Going green isn’t a choice anymore but a necessity as we stare at imploding climatic changes.
While renewable energy is one of the most obvious energy options that might come to your mind, some low hanging fruits still remain to be plucked in the conventional energy space.
Liquefied Petroleum Gas (LPG) is one of them.
The present Indian government has worked on the RPT (Reform-Perform-Transform) trinity to kill two birds with one stone.
It’s identified the pivotal role LPG can play in improving India’s energy mix and dealing with climatic changes effectively. And now by enduring cautious efforts, it’s trying to transform India’s energy sector.
LPG is not only an intelligent fuel choice but perhaps a smart investment theme as well.
Our research team recently spotted a company, Confidence Petroleum India Limited, which is likely to benefit from changing cooking and auto fuel preferences in India.
Confidence Petroleum is one of India’s leading LPG cylinder manufacturers with a capacity of over 50 lakh cylinders. It is India’s largest private sector LPG bottler with a network of 58 bottling plants. It started manufacturing composite cylinders - Go Gas & Go Gas Elite from its Maharashtra facility. Confidence has also successfully forayed into the Auto LPG Dispensing Stations (ALDS) segment and currently has ~163 stations of its own. It is also expected to set up additional facilities shortly.
Data as on January 16, 2019
Note: Between January 2014 and January 2019, the stock of Confidence petroleum Limited has advanced at 81% compounded annualised rate.
(Source: ACE Equity)
The government of India has been pondering over improving the share of natural gas in India’s total energy mix from 6% to 15% over the next few years.
LPG is the world’s 3rd most popular auto fuel. It’s been almost two decades since the Indian government permitted the use of LPG as an auto fuel. However, the rate of adaption hasn’t been encouraging so far. Fortunately, the scenario is expected to improve from here on.
According to data published by the Ministry of Petroleum and Natural Gas, the government has provided 5.8 crore deposit-free LPG connections under Pradhan Mantri Ujjwala Yojana (PMUY). Moreover, 23 crore LPG consumers have benefited from the Direct Benefit Transfer scheme, PAHAL.
As a result of all these efforts, the penetration of LPG as a cooking fuel jumped remarkably from 56% in April 2015 to 89% in October 2018.
As far as using LPG as an automotive fuel is concerned, growth opportunities are immense. Particulate emissions of LPG are 120 times lower than that of diesel. Moreover, its Nitrogen Dioxide emissions are 68% lower than that of petrol.
According to Auto LPG Coalition (IAC), as India approaches the Electric Vehicle (EV) revolution, CGD (City Gas Distribution) players may become sceptical about fresh investments since their turnaround time is high. This might present, substantial growth opportunities to auto LPG players, since LPG might play the role of an alternative fuel for another 15 years.
Between FY 2017-18 and FY 2020-21, revenue of Confidence Petroleum Limited is likely to to grow at a 33% compounded annualised rate to Rs 1,442 crores. Auto LPG segment is expected to grow at a massive 61% compounded annualised rate, while the revenue of the bottling division and LPG marketing division might improve at compounded annualised rates of 33% and 24%, respectively. Steady performance of the cylinder manufacturing division, which is likely to grow at 12%, might offer visibility of earnings growth.
Over the same period, the adjusted Profit After Tax (PAT) is expected to grow at a whopping 64% on a compounded annualised basis.
Against this backdrop, our research has initiated a buy call on Confidence Petroleum with an upside potential of 78%.
Image Credit: Confidence Petroleum India Limited
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company.
We do not individually or collectively hold 1% or more of the securities of the company.
We do not have any other material conflict of interest in the company.
We do not act as a market maker in securities of the company.
We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company.
We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships.
We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.