saral gyan hidden gem - oct 2012

UNEXPLORED MULTIBAGGER SMALL CAP STOCKS

EQUITY RESEARCH REPORT

TIDE WATER OIL LTD.

BSE CODE: 590005 NSE CODE: TIDEWATER

Industry: Lubricants CMP: Rs. 7744.50 (30/10/2012)

Market Cap: 6747.01 (Millions) Target Price: Rs. 12500.00 Date: October 30, 2012 Time Period: 18 – 24 months

Saral Gyan Capital Services

www.saralgyan.in

An Independent Equity Research Firm

http://www.saralgyan.in/

HIDDEN GEMS – OCTOBER 2012

- 2 - SARAL GYAN CAPITAL SERVICES

TABLE OF CONTENT

S.No Content Page No.

1. Company Background 03

2. Recent Developments 07

3. Financial Performance 08

4. Charts & Graphs 10

5. Peer Group Comparison 12

6. Key Concerns / Risks 12

7. Saral Gyan Recommendation 13

8. Disclaimer 14



1. Company Background

Tide Water Oil Co. (I) Ltd. is a part of the multi divisional Andrew Yule group that has diverse interests in Engineering, Electrical, Tea Cultivation, Power Generation, Digital Communication Systems and Lubricants.

Tide Water has been a pioneer of Automotive and Industrial lubricants in India since 1928 and has five plants at Howrah, Oragadam, Turbhe, Silvassa and Faridabad.

Its repertoire of automotive products includes engine oils for trucks, tractors, commercial vehicles, passenger cars and two/three wheelers. It also produces gear oils, transmission oils, coolants and greases for automobiles. For industrial application it manufactures industrial oils, greases and speciality products like metal working fluids, quenching oils and heat transfer oils. Tide Water has tie-ups for manufacture of genuine oils with a number of renowned OEMs in the automotive and industrial equipment segment.

Quality has been key area focus and the company has continued to innovate with high performance products keeping pace with advancements in technology and market needs. It reaches out to its customers through its pan India distribution network with the popular range of products, widely accepted for their quality and excellence.

The company also has technical collaboration with JX Nippon Oil & Energy Corporation, the No.1 petroleum conglomerate in Japan. Superior quality lubricants under the brand name Eneos are manufactured and marketed in India by Tide Water Oil.

The company services the requirements of its customers through its wide marketing and distribution network comprising of about 100 distributors, 300 dealers and 20,000 subdealers. Tide Water Oil markets its products under the brand name of “Veedol” in the Indian lubricating market. During the year, Tide Water Oil acquired 100% equity shares of Veedol International Limited, which owned the global rights of the brand “Veedol”. Post this acquisition, Tide Water Oil would be able to venture into the international lubricants market through the 100% subsidiary Veedol International Limited.



Products

Distribution Network



Research & Development

Quality has always been an area of focus at Tide Water Oil and it has continued to innovate with high performance products keeping pace with advancements in technology. It has been constantly upgrading its resources, infrastructure and work environment to support its core values, quality aims and objectives.

Strict quality control adhering to stipulated standards is maintained at the plants located at Howrah, Oragadam, Turbhe, Silvassa and Faridabad.

The hub of R&D for lube-oils for the company is located at Deonar, near Mumbai. The R&D hub for grease is at Royapuram. These R&D centres are approved by the Department of Scientific & Industrial Research, Ministry of Science and Technology, Government of India.



2. Recent Development Tide Water Oil Company initiates global expansion programme - May 31, 2012

Tide Water Oil Company India Ltd has kicked off an international expansion programme after the purchase of lubricant maker 'Veedol International Ltd' from BP International.

After buying German auto lubricant company, Tide Water Oil, which is an arm of Andrew Yule Company Ltd, had bagged the right to sale Veedol products to nearly 120 nations across the globe, according to Kallol Datta, Chairman and Managing Director, Andrew Yule.

While announcing the company's financial results for FY12, Datta stated that last year and before the purchase of the Kolkata Based company, it saw 17% rise in sales to Rs 1,004.47 crores as compared to Rs 859.41 crore in the FY11.

He also said that besides marketing Veedol lubricants to 120 nations in phases before the end of 2012, they are holding discussions with prominent Japanese auto lubricant and oil producer 'JX Nippon Oil and Energy Corporation' for strengthening business operations in India.

Tide Water Oil India Limited has acquired Scotland based - Veedol International from BP Plc. – October 24, 2011 Tide Water Oil was set up initially to trade as an importer of Lubricants for the group companies of Andrew Yule and other related industries. The imports were mainly from Tide Water Oil Company, USA. Tide Water Oil Company, USA, had a 22% ownership in Tide Water Oil which later was transferred to Getty Oil, USA and then to the Texaco Group under the aegis of Four Star Oil and Gas Company, USA, by a series of overseas M&As. Getty Oil after acquiring the Tide Water Oil Company, USA, spun off the ‘Veedol’ brand, except in India, into a separate company, Veedol International, Scotland and subsequently sold its stake in Veedol International to BP Plc. BP Plc announced it's plans of selling Veedol International and Duckhams in February this year. In 2002, Andrew Yule decided to divest its stake in Tide Water as a part of a restructuring excercise. A number of companies including IBP Limited, Caltex, Mitsubishi Oil, Standard Greases and a Kolkata based entrepreneur - Mahendra Jalan were interested in acquiring the company, but the disinvestment was stuck due to the dispute over the 'Veedol' and 'Nippon Mitsubishi' brands. In 2008, Cheron Group owned Four Star Oil and Gas Company sold its 22% stake in Tide Water, which was majorly bought by Mahndra Jalan and Maharashtra based Standard Greases Private Limited.



3. Financial Performance Tide Water Oil Co (I) net profit declines 7.82% in the June 2012 quarter Tide Water Oil Co (I) net profit declined 7.82% to Rs 163.9 million in the quarter ended June 2012 as against Rs 177.8 million during the previous quarter ended June 2011. Net sales rose 10.73% to Rs 2169.5 million in the quarter ended June 2012 as against Rs 1959.3 million during the previous quarter ended June 2011 Tide Water Oil Co (I) net profit declines 41.33% in the March 2012 quarter Tide Water Oil Co (I) net profit declined 41.33% to Rs 138.7 million in the quarter ended March 2012 as against Rs 236.4 million during the previous quarter ended March 2011. Net sales rose 8.27% to Rs 2153.3 million in the quarter ended March 2012 as against Rs 1988.8 million during the previous quarter ended March 2011

For the Audited full year, net profit declined 7.92% to Rs 590.8 million in the year ended March 2012 as against Rs 641.6 million during the previous year ended March 2011. Sales rose 15.28% to Rs 8733.6 million in the year ended March 2012 as against Rs 7575.7 crore during the previous year ended March 2011

1 2 3 4 5 6

Net Sales 1988.8 1959.3 1828.8 2097.8 2153.3 2169.5

Net Profit 236.4 177.8 119.8 154.5 138.7 163.9

1988.8 1959.31828.8

2097.8 2153.3 2169.5

236.4 177.8 119.8 154.5 138.7 163.9

0

500

1000

1500

2000

2500

Rs in

Mil

lio

ns

Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12

Last 6 Quarters Net Sales & Profit



Current & Expected Earnings Quarterly Ended Profit & Loss Account

Expected Earnings for 3rd and 4th Qtr FY 2012-13: Tide Water Oil Ltd has posted muted growth in FY 2011-12. In last 3 years, Tide Water Oil revenue & net profit grew at a CAGR of 13.61% & 21% respectively over FY09-12. We believe that in short term, company operating margins may remain under pressure due to rising fuel prices and high interest rates but this may get mitigated partially by the company’s venture into the international lubricant market. We expect company to deliver robust top line & bottom line in FY13-14.

Particulars (Rs in Millions)

Sep 2011

Dec 2011

Mar 2012

Jun 2012

Sep 2012 E

Dec 2012 E

Audited / UnAudited UA UA UA UA UA UA

Net Sales 1828.8 2097.8 2153.3 2169.5 1935.7 2326.5

Total Expenditure 1639 1854.8 1961 1917.4 1736.3 2044.2

PBIDT (Excl OI) 189.8 243 192.3 252.1 199.4 282.3

Other Income 13.8 9.4 34.4 12.1 14.2 11.8

Operating Profit 203.6 252.4 226.7 264.2 213.6 294.1

Interest 1.6 11.2 3.2 0 2.1 14.6

Exceptional Items 0 0 0 0 0 0

PBDT 202 241.2 223.5 264.2 211.5 279.5

Depreciation 22.6 23.6 24.8 21.6 24.1 25.6

Profit Before Tax 179.4 217.6 198.7 242.6 187.4 253.9

Tax 59.6 63.1 60 78.7 60.3 84.7

Provisions & contingencies 0 0 0 0 0 0

Profit After Tax 119.8 154.5 138.7 163.9 127.1 169.2

Extraordinary Items 0 0 0 0 0 0

Prior Period Expenses 0 0 0 0 0 0

Other Adjustments 0 0 0 0 0 0

Net Profit 119.8 154.5 138.7 163.9 127.1 169.2

Equity Capital 8.7 8.7 8.7 8.7 8.7 8.7

Face Value (IN RS) 10 10 10 10 10 10

Reserves

Calculated EPS 137.7 177.59 159.43 188.39 146.09 194.48

Calculated EPS (Annualised) 550.8 710.34 637.7 753.56 584.37 777.93

No of Public Share Holdings 642810 642810 642810 642810 642810 642810

% of Public Share Holding 73.78 73.78 73.78 73.78 73.78 73.78



4. Charts & Graphs i) Share holding Pattern: Promoters share holding is 26.22% without any major change in their stake since last 3 years. FII exposure is nil where as DII exposure is negligible at 14.54%.

ii) Share Price Moving Average: Tide Water Oil Ltd is currently trading above its 50 and 200 day price moving average. Stock has strong support at Rs 6500-6600 levels.



iii) Performance Chart: Company has shown consistent growth in sales and profits year after year.

iv) Comparative Graph: Tide Water Oil Ltd has given positive returns of 14.11% compared to Sensex returns of 3.52% in last one year.



5. Peer Group Comparison

PEER GROUP Tide Water Oil Castrol India Gulf Oil Corp Panama Petro

CMP 7744.50 301.60 90.25 144.10

52 W H/L 8539.90/5676.10 338.00/192.53 103.50/52.25 252.50/133.00

Market Cap 6747.01 149159.66 8947.83 1242.91

Results (in Million) Jun-12 Sep-12 Jun-12 Jun-12

Sales 2169.50 7213.00 2478.85 1559.92

PAT 163.90 857.00 100.72 22.05

Equity 8.70 4946.00 198.29 86.19

EPS 662.19 8.82 5.76 23.03

P/E 11.70 34.19 15.66 6.26

6. Key Concerns / Risks The operating margins of the company are likely to remain susceptible to the

volatility in base oil prices and the ability of the industry to pass on cost increases to the consumers.

Muted growth outlook for the domestic automobile industry in the near term on

the back of rising fuel prices and high interest rates.

Presence of a number of large players including the oil Public Sector Undertakings (PSU) and strong private sector companies can give tough competition to the company.

Rise in input prices may continue to put the margins under pressure and

increasing emphasis on long drain lubes may adversely affect volume growth.



7. Saral Gyan Recommendation

With well diversified basket of products, strong brand recognition and wide distribution network, Tide Water Oil is well equipped to perform steadily in the coming years. Acquisition of Veedol International Limited bestowed competitive edge unfolding promising opportunities for the Company globally.

Tide Water Oil has already started exploring opportunities of marketing Veedol

Lubricants in foreign markets post acquisition of Veedol International Ltd. The Company’s sub-brands such as Prima, Turbo and Take Off have also been able to create a good will in the respective market segments. Company has already set up a subsidiary in Dubai and is also looking at spreading business in SA, Mexico and Germany.

New initiatives under various loyalty programmes with the dealers and the retailers have strengthened the marketing and distribution network of the Company. Moreover, expected prices rise of all its products by Rs. 12-14 per litre may impact topline in near term but increase profit margins of the company.

As per our estimates, Tide Water Oil can deliver bottom line of 600 million for full financial year 2012 – 13, annualized EPS of Rs. 690 with forward P/E ratio of 11.2 X for FY 2012-13, which makes stock relative inexpensive compared to peer group companies.

Company has paid regular dividends to share holders since last 5 years; dividend

payout is increased from Rs. 20/share in 2008 to Rs. 120/share in 2012. Dividend yield at CMP is 1.55%.

On small equity of Rs. 8.7 million, the estimated annualized EPS for FY 12-13 works out to Rs. 690 and the Book Value per share is Rs. 3706.97. At current market price of Rs. 7744, stock price to book value is 2.09, which makes stock valuations attractive with a long term view of 18-24 months.

Considering relative inexpensive valuations and opportunities in global markets for well established & trusted brand like Veedol, we find Tide Water Oil Ltd an attractive Pick. Saral Gyan Team recommends “BUY” on Tide Water Oil Ltd. for a target of Rs. 12,500 over a period of 18-24 months.

Buying Strategy:

50% at current market price of Rs. 7744.50 50% at price range of Rs. 6500 - 6800



8. Disclaimer Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company. Disclosure: The author of this article does not hold shares in the recommended company. © SARAL GYAN CAPITAL SERVICES

This document prepared by our research analysts does not constitute an offer or solicitation for

the purchase or sale of any financial instrument or as an official confirmation of any transaction.

The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as

such. Saral Gyan Capital Services (www.saralgyan.in) or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error

in the information contained in this report. This document is provide for assistance only and is

not intended to be and must not alone be taken as the basis for an investment decision.

http://www.saralgyan.in/

saral gyan hidden gem - oct 2012

Economy & Finance