Analyst Corner: ‘Buy’ on confidence Petroleum India with a Target Price of Rs 65

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Published: January 3, 2019 1:37:46 AM

It is the leading private sector player in the auto LPG segment with over 150 stations in Andhra Pradesh, Karnataka, Tamil Nadu, Telangana and Maharashtra.

It is the leading private sector player in the auto LPG segment with over 150 stations in Andhra Pradesh, Karnataka, Tamil Nadu, Telangana and Maharashtra.

Confidence Petroleum India (CPIL) is a Nagpur-based company promoted by the Khara Group engaged in four aspects of LPG: (i) LPG cylinder manufacturing, (ii) LPG bottling, (iii) LPG marketing and (iv) Auto LPG dispensing stations. Company is on a strong growth path and is expected to clock a strong growth in revenue to Rs19,407mn – a CAGR of 47% from FY18-FY21 with growth mainly coming from the fast-growing auto LPG dispensing stations.

Importantly, they are expanding in a high growth, cash flow positive retail foray in auto LPG dispensation where the payback period is under 18 months, leading to high capital return ratios. CPIL is a vertically integrated company with end to end infrastructure to sustain its operations. It is the leading private sector player in the auto LPG segment with over 150 stations in Andhra Pradesh, Karnataka, Tamil Nadu, Telangana and Maharashtra.

CPIL is expected to have strong earnings growth through to FY21 with earnings growing at 134.7% in FY19, 50.3% in FY20 and 33.5% in FY21 with ROEs of 20%+ in these years and ROCEs in excess of 25%, making it an attractive investment opportunity.
CPIL is expected to have strong performance, going forward. In H1FY19, the company has reported over 50% growth in operating profits and we expect the trend to continue as the benefits from earlier capex starts getting reflected in the ensuing period. CPIL is expected to report an EPS of `2.4 for FY19, `3.7 for FY20 and `4.9 for FY21. The stock at the current price of `40, trades at a target price of `65, trades at a PER of 17.5x FY20 earnings and 13.2x FY21 EPS. ‘Buy’.

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