Diwali Small Cap Pick:Confidence Petroleum

By | November 5, 2010

Fundamental Aspect

“Confidence Petroleum is a play on urbanization. Rural India is increasingly transitioning from kerosene and other cooking mediums to LPG gas, you are also seeing greater trend of nuclear families, so that means a greater demand for LPG cylinders.”

“Confidence is the largest cylinder manufacturer in Asia; the capacity is more than 40 lakh and we are seeing a greater trend where currently the revenues as far as cylinder manufacturing is concerned is 40% but that’s not the story, the real big story is in the auto LPG division where they are looking to move from 70 auto LPG gas stations to about 250 LPG gas stations and so currently that auto LPG revenue is about 25% of the topline, which would go to 40% of the topline.

So their EBITDA margins would move from 10% to 14% so this year they will be making about 800 crores of revenue and from that perspective that will move to 1,100 crores of topline.

So from valuation standpoint you compare Everest Kanto which is trading at 16 times, this is trading at 6.5 times. So we have a target price of Rs 50 just based on EPS calculations.”

Management has aggressive Capital Raising plans of about 500 cores in next 2 years to improve their capex thus increasing their topline and Bottom-line.

Management is having aggressive plans and will definitely benefit the shareholders in long term.

Technical Aspect

Daily Chart

If we have look at daily chart we can see Stock is taking support at 20 DMA on any correction it is facing and then bounce fiercely from that level.

Stock looks for a Rise till 25 in the present up move and correction should be restricted till 18-19 levels.

Weekly Chart

Looking at weekly chart we can see high of 23 than 25 in the present up move. Technical Indicators are overbought and can correction and consolidation should be need of hour for another round of up move.


Long Term Chart

This Stock should be picked on any dip and sit on it patiently for few years and ripe the fruits of your patience. Long term chart we see once 25 is take out than stock can reach 35 in matter of few days only on circuits.

But this is a long term growth story and Investor should stay invested in the script for reaping multi fold returns.

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