SAVITA OIL TECHNOLOGIES LTD. ANALYSIS
Should you invest or trade in this company and if yes, then at what price and why?
Should you invest or trade in this company and if yes, then at what price and why?
SAVITA OIL TECHNOLOGIES LTD.
notionooodles.blogspot.com-SAVITA OIL TECHNOLOGIES LTD ANAL…
SECTOR:
Lubricants
1139.10
-3.95 (-0.35%)
NSE: 16 Dec 4:00 PM
NSE: SOTL BSE: 524467
MEANING
Savita Oil Technologies, earlier known as Savita Chemical, a Savita Group company was incorporated in 1961, the founder of the group is N K Mehra. It has been pioneering petroleum specialty products. Whether it’s liquid Paraffins or the high-tech filling compounds for Telecom cables. It has been at the forefront of supplying vital inputs to industries as diverse as power, petrochemicals, telecommunications, Pharmaceuticals, Cosmetics, and Plastics, etc. SAVONOL & TRANSOL are quality products manufactured by Savita in the most modern continuous process plant, the only one of its kind in India.
It manufactures liquid paraffin, an import substitute, for the first time in India at its plant in Bombay. Since then, it has expanded its product profile and is today one of the leading manufacturers of petroleum specialties, which include products such as petroleum sulphonates, transformer oils / white oils, and petroleum jellies, among other specialty products.
The company has tied up with Japanese oil major, Idemitsu, which will supply the technical know-how to manufacture and market its entire range of automotive and industrial lubricants. It launched the automotive range of lubricants under the Idemitsu brand name in Nov.''94. For this project company came out with a public issue.
The demand for the company's product is increasing, for this company has a plan to expand its network in Western, Northern, and Southern India. SCL has initiated steps for obtaining the ISO 9001 certificate. The company has established a power plant to generate, distribute & supply electricity based on wind energy at Satara district, Maharashtra. The plant was commissioned in March 1999. This power generated from the plant will be used for captive consumption & also supply to third parties on a commercial basis. Development work is continuing on Sulfonates, Hot Melt Adhesives, and Speciality Waxes.
The International Business Division of the Savita Group was set up in 1993 with a dedicated group of skilled professionals and strong leadership. With a sharp customer focus and an innovative attitude, the Savita Group is today India''s largest exporter of petroleum specialties products.
Savita exports its products across the globe and is known for its customization, ISO 9001 Quality System, and innovative packagings like Flexitanks, ISO tanks, and optimized drum-stacking systems. Savita's global reputation is that of an ethical & reliable company with efficient distribution channels.
It manufactures liquid paraffin, an import substitute, for the first time in India at its plant in Bombay. Since then, it has expanded its product profile and is today one of the leading manufacturers of petroleum specialties, which include products such as petroleum sulphonates, transformer oils / white oils, and petroleum jellies, among other specialty products.
The company has tied up with Japanese oil major, Idemitsu, which will supply the technical know-how to manufacture and market its entire range of automotive and industrial lubricants. It launched the automotive range of lubricants under the Idemitsu brand name in Nov.''94. For this project company came out with a public issue.
The demand for the company's product is increasing, for this company has a plan to expand its network in Western, Northern, and Southern India. SCL has initiated steps for obtaining the ISO 9001 certificate. The company has established a power plant to generate, distribute & supply electricity based on wind energy at Satara district, Maharashtra. The plant was commissioned in March 1999. This power generated from the plant will be used for captive consumption & also supply to third parties on a commercial basis. Development work is continuing on Sulfonates, Hot Melt Adhesives, and Speciality Waxes.
The International Business Division of the Savita Group was set up in 1993 with a dedicated group of skilled professionals and strong leadership. With a sharp customer focus and an innovative attitude, the Savita Group is today India''s largest exporter of petroleum specialties products.
Savita exports its products across the globe and is known for its customization, ISO 9001 Quality System, and innovative packagings like Flexitanks, ISO tanks, and optimized drum-stacking systems. Savita's global reputation is that of an ethical & reliable company with efficient distribution channels.
Products manufactured by the company include:
- SAVONOL - Liquid Paraffin
- VINTAGE - Optic Fibre Cable Filling Compound
- TRANSOL - Transformer Oil
- SAVOFLOW - Pour Point Depressants
- TECHNOL - White Oil
- SAVSOL - Lubricants
- SAVOGEL - Petroleum Jellies
- SAVOWAX - Waxes
- SAVOFIL/SAVOFLOD - Cable Filling Compound
- IDEMITSU - Automotive & Industrial Lubricants
- SAVOX BW300 - Emulsifiable(Oxidized) Polyethylene Wax
- SPECIALITY WAX EMULSION - For Leather finishings, Water-based paints, and printing inks
Awards & Achievements:
- ISO 9001 Quality System Certified Company.
- It is ISO 9002 certified.
- It produces KEMA Approved Transformer Oil.
Milestones
1961: Mr. Nandkishore Mehra, along with his father Mr. Devichand Mehra founded Savita in 1961. He was an ambitious and aspiring entrepreneur and after initial trading stints with thinners and solvents, he set up Savita’s first manufacturing unit at Sakinaka, Mumbai in 1961 to manufacture liquid paraffin as an import substitute. This was soon followed by the production of petroleum jelly in 1965.
1969: Savita built its second manufacturing unit at Turbhe, on the outskirts of Mumbai for the manufacture of petroleum specialties.
1976: Savita’s Research and Development Department was set up to be the first of its kind in the private sector oil industry in India to be recognized by the Government of India’s Department of Science and Technology.
1989: Savita set up another manufacturing unit at Mahad, an Industrial Development Zone in Maharashtra.
1992: Savita Polymers Limited was incorporated as a group company to manufacture Polymer Based Compounds, Cable Filling Compounds, and Micro and Oxidised Waxes.
1994: Maiden Public Issue of Equity Shares was proposed, and Savita was listed on The Bombay Stock Exchange and the National Stock Exchange of India.
1994: Launched the entire range of Automotive and Industrial Lubricants.
1997: Accredited with ISO 9001 Certification, the first and only Petroleum Specialty Company in the private sector to get this at the time.
1998: Expanded manufacturing of petroleum specialties by setting up its third manufacturing unit at Kharadpada, Silvassa.
1999: Commissioned the first windmill of the Company in Maharashtra marking the beginning of Savita’s foray into Alternative and Sustainable Energy Sources. Savita today has a capacity of over 50 MW of generation from renewable sources.
2002: Achieved the Government Recognized Star Export House Status, and currently exports to over 75 countries worldwide.
2007: Launched SAVSOL, Savita’s own brand of Lubricating Oils.
2009: Company renamed to Savita Oil Technologies Limited.
2013: Setup a third, fully automated, state of the art manufacturing unit at Silli, Silvassa for the manufacture of the entire range of petroleum specialties and lubricants
INDUSTRY OVERVIEW
India is the third-largest market for finished lubricants in the world after the US and China. The total demand in India for finished lubricants, including process oils, is estimated at ~2.5MMT in 2019 with process oils accounting for one-third of the demand. The Indian lubricant market can be broadly classified into three segments: (1) automotive; (2) industrial; and (3) process/white oils.
Automotive Segment
Diesel Engine Oils (DEO) lead the automotive lubricant market, as they form ~45% of the market, followed by Motorcycle Oils (MCO) and Passenger Car Motor Oils (PCMO). The demand for automotive lubricants is directly related to the quantum of vehicle movement as well as the growth of the vehicle population. As improving vehicle engine technologies coupled with superior products has been leading to an increase in drain intervals, it is negative for the lubes industry. However, customers always prefer upgrading to branded products. The automotive segment, which has been growing at an average of 3% per year, is expected to grow at a similar rate in the foreseeable future.
Industrial Segment
The industrial lubricant segment comprises hydraulic fluids, metalworking fluids, greases, and industrial gear oil. These products are used in construction, manufacturing, textile, power generation, mining, food processing, light-heavy engineering, marine operations, and metalworking sectors. Demand for industrial lubricants depends on the overall growth trends of the economy. The segment has been witnessing a muted 1-2% growth due to sluggish economic activities.
Infrastructure Segment
The infrastructure segment can be classified separately, as it leads the demand for both industrial and automotive lubricants since the products find application in both on-highway vehicles as well as off-highway construction equipment. Improving prospects of the infrastructure sector, encouraging prospects of the rural economy, focusing on energy efficiency, higher brand consciousness, and continuous advancement of engine technology are some macro enablers that will contribute to the growth of India.
BRICS Nations to Boost Base Oil Growth
The base oil market size is projected to grow from US$33.7bn in 2019 to US$39.6bn by 2024, clocking 3.3% CAGR over 2019-2024. Surging demand for high-grade oils in the automotive industry and increasing GDP in the APAC region led by increasing industrial activities are fueling the market growth across the globe. Lucrative market opportunities and rising demand for renewable energy in the BRIC nations (Brazil, Russia, India, China, and South Africa) are expected to fuel growth.
MARKET ANALYSIS
PORTER'S FIVE FORCES ANALYSIS
1. The Threat of New Entrants in the Oil and Gas Industry
The factors that affect the newest companies to enter the oil and gas business, especially the upstream segment are:
- Huge capital required
- National Oil Companies control more than 90% of the proven oil and gas reserves
- Increase of the internal competition within the industry
- The big oil and gas companies can increase their R&D spending which will give them a boost regarding innovation and improve existing technologies. This strategy will give them a competitive advantage over new oil and gas companies which now enter the industry. Also, to mention that this whole strategy of the big IOCs can force the new competitors to spend more money
- The big IOCs or as we call it Integrated Oil and Gas Companies which can easily compete with new competitors due to economics of scale
- Oil and Gas prices volatility
- Oil and Gas Reserves are usually located in war zones or geographical areas with geopolitical conflicts or political instability
- National and international law restrictions can affect the new entrance of a company in the oil and gas business.
2. Bargaining Power of Buyers in the Oil and Gas Industry
The main buyers of oil and gas products are:
- Refineries
- National Oil Companies
- International Oil and Gas companies
- Distribution companies
- Traders
- Countries (USA, China, Japan, countries of the EU, etc.)
The bargaining power of buyers in the oil and gas industry is relatively small due to the nature of this industry. Buyers are interested in the price and the quality of a product.
3. Bargaining Power of Suppliers
The Bargaining power of the suppliers in this industry is moderate. The suppliers in this industry are those companies that are extracting natural resources from the old fields. These companies hold a significant amount of power on the industry dynamics. In addition, the contracts which are formed with the government of the region where oil is being extracted influence the bargaining power of the suppliers. The government can exert some influence on corporate decisions. However, the oil-based economies are dependent on the operations of these companies so they can exert control only to some extent.
4. Threats of Substitutes in the Oil and Gas Industry
The main alternatives sources to oil and gas for producing energy which used for electricity, transportation, heating, etc. are:
- Nuclear Energy
- Coal
- Hydrogen
- Biofuels and other renewables sources such as solar and wind energy
5. Competitive rivalry
The competitiveness of the oil and gas industry and especially in the upstream sector of the industry is significantly intensive. There are three different types of players in the upstream sector of the upstream sector, these are:
- The big IOCs or as we call it Integrated Oil and Gas Companies (private sector).
- One other category of companies in the private oil and gas companies which are operating only in the upstream sector of the oil and gas industry (Exploration and Production).
- Finally, the last group of companies that control more than 90% of the proven oil and gas reserves is the National Oil Companies.
COMPETITORS
Lubricants
| PEER NAME | MARKET CAP. | ||
|---|---|---|---|
| 3,441 | |||
| 2,020 | |||
| 1,577 | |||
| 232 |
Transformer Oil
| PEER NAME | MARKET CAP. | ||
|---|---|---|---|
| 2,816 | |||
| 1,577 |
Oil Refining
| |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
GROWTH PROSPECTUS
The company continues to work on adding more synthetic lubricant products to its range which have better fuel efficiency. Sustainability is a key factor in your Company’s endeavor to introduce products that are more biodegradable and environmentally friendly. Several new product development projects are in the pipeline which should enhance the product portfolio of your Company in the years to come.
FINANCIALS
VALUATIONS
Relative Valuation
(Rule#1); report
- Current EPS: 158.8
- Estimated
Future Growth Rate: 13%
- Estimated Future PE: 5.1
- The
margin of Safety: 50%
- Minimum
Acceptable Rate of Return: 15%
- Calculated Future EPS: 555.218
- Future Share Price: 2776.056
- Sticker Price: 694.01
- Buy Price: 347.007, As the
current price of the share, is ₹1139, can we say that the company is overpriced as of now?
MANAGEMENT
Management compensation : 0.37% of sales
BOARD OF DIRECTORS
- GN Mehra
Chairman & Managing Director
Gautam N. Mehra is a Chemical Engineer and an MBA from the University of California (Berkeley). He has a total experience of nearly three decades in the industry. He has successfully led the core business of Petroleum Specialties of the Company to new heights year after year.
- SM Dixit
WholeTime Director & CFO
Suhas M. Dixit is a Member of the Institute of Chartered Accountants of India as well as a Member of the Institute of Cost Accountants of India. He has over 35 years of experience in the fields of Accounting, Finance, and Taxation. He is also the Chief Financial Officer of the Company
- SG Mehra
Whole Time Director
Siddharth G. Mehra is a Bachelor of Science in Technical Systems Management from the University of Illinois. He also holds a master’s degree of Science in Management from the London School of Economics and Political Science
- MC Dalal
Independent Director
Meghana Dalal is a commerce graduate and a Fellow Member of the Institute of Chartered Accountants of India. Her professional practice spans over three decades and she specializes in the Management of Corporate Emoluments across various Industries. She is also a Director of Chetan Dalal Investigation and Management Services Private Limited. Currently, she is the Chairperson of the Audit Committee of the Company
- RN Pisharody
Independent Director
Ravindra Pisharody holds a bachelor’s degree in Technology (B. Tech) from IIT, Kharagpur, and Post-Graduate Diploma in Management (PGDM) from IIM, Calcutta. He is a Senior Management Professional with over 35 years of executive experience, and he has held National, Regional, and Global leadership roles in Sales & Marketing, Strategy Development, BU Lead/CEO, etc. with Philips India, British Petroleum / Castrol including Executive Director – Commercial Vehicles of Tata Motors.
| Shareholders- Sep 21 | No of Shareholders | Shares(cr.) | Holding (%) | Shares in Demat (cr.) |
|---|---|---|---|---|
| Promoter and Promoter Group | ||||
| Indian Promoters | 19.00 | 0.99 | 71.81% | 0.99 |
| Individuals / Hindu Undivided Family | 13.00 | 0.99 | 65.53% | 0.91 |
| Governent | 0.00 | 0.00 | 0.00% | 0.00 |
| Bodies Corporate | 6.00 | 0.09 | 6.28% | 0.09 |
| Financial Institutions / Banks | 0.00 | 0.00 | 0.00% | 0.00 |
| Others | 0.00 | 0.00 | 0.00% | 0.00 |
| Foreign Promoters | 0.00 | 0.00 | 0.00% | 0.00 |
| NRI/Foreign | 0.00 | 0.00 | 0.00% | 0.00 |
| Bodies Corporate | 0.00 | 0.00 | 0.00% | 0.00 |
| Institutions | 0.00 | 0.00 | 0.00% | 0.00 |
| Others | 0.00 | 0.00 | 0.00% | 0.00 |
| Total Promoter | 19.00 | 0.99 | 71.81% | 0.99 |
| Institutions | ||||
| Mutual Funds / UTI | 1.00 | 0.11 | 7.77% | 0.11 |
| Insurance Companies | 0.00 | 0.00 | 0.00% | 0.00 |
| FI/Bank | 0.00 | 0.00 | 0.00% | 0.00 |
| Govt | 0.00 | 0.00 | 0.00% | 0.00 |
| FIIs | 49.00 | 0.02 | 1.14% | 0.02 |
| Foreign Institutional Investors | 0.00 | 0.00 | 0.00% | 0.00 |
| Foreign Portfolio Investors | 49.00 | 0.02 | 1.14% | 0.02 |
| Foreign Venture Capital Investors | 0.00 | 0.00 | 0.00% | 0.00 |
| Foreign Financial Institutions / Banks | 0.00 | 0.00 | 0.00% | 0.00 |
| Foreign Bodies DR | 0.00 | 0.00 | 0.00% | 0.00 |
| Other Institutions | 0.00 | 0.00 | 0.00% | 0.00 |
| Venture Capital Funds | 0.00 | 0.00 | 0.00% | 0.00 |
| State Finance Corporation | 0.00 | 0.00 | 0.00% | 0.00 |
| Others | 11.00 | 0.00 | 0.00% | 0.00 |
| Total Institutions | 50.00 | 0.12 | 8.91% | 0.12 |
| Non-Institutions | ||||
| Bodies Corporate | 155.00 | 0.03 | 2.30% | 0.03 |
| NRIs/OCBs | 588.00 | 0.01 | 0.65% | 0.01 |
| Individuals | 19,128.00 | 0.21 | 15.41% | 0.20 |
| Up to 1 lacs | 19,123.00 | 0.18 | 13.24% | 0.17 |
| More than 1 lacs | 5.00 | 0.03 | 2.17% | 0.03 |
| Other Non-Institutions | 591.00 | 0.01 | 0.92% | 0.01 |
| Foreign Collaborators | 0.00 | 0.00 | 0.00% | 0.00 |
| Trusts | 2.00 | 0.00 | 0.00% | 0.00 |
| Hindu Undivided Families | 541.00 | 0.01 | 0.48% | 0.01 |
| Shares in transit | 0.00 | 0.00 | 0.00% | 0.00 |
| Market Maker | 0.00 | 0.00 | 0.00% | 0.00 |
| ESOP/ESOS/ESPS | 0.00 | 0.00 | 0.00% | 0.00 |
| Societies | 0.00 | 0.00 | 0.00% | 0.00 |
| Escrow Account | 0.00 | 0.00 | 0.00% | 0.00 |
| Others | 11.00 | 0.01 | 0.37% | 0.01 |
| Total Non-Institutions | 20,462.00 | 0.27 | 19.28% | 0.25 |
| Total Public | 20,512.00 | |||
| Depository Receipts | ||||
| ADRs | 0.00 | 0.00 | 0.00% | 0.00 |
| GDRs | 0.00 | 0.00 | 0.00% | 0.00 |
| Others | 0.00 | 0.00 | 0.00% | 0.00 |
| Total Depository Receipts | 0.00 | 0.00 | 0.00% | 0.00 |
| Grand Total | 20,531.00 | 1.38 | 100.00% | 1.37 |
WRITER'S OPINION
KEY
POSITIVES
- The company's cost in raw materials is reduced since Mar'19 due to which operating profit is increasing, especially in the case of base oils.
- Interest expenses are also decreasing since Mar'19, resulting in higher profit before tax.
- The finance cost is also less due to decrease loss on currency fluctuation.
- The company is almost debt-free.
- The company is also increasing its investments and thus, increasing other incomes as well.
- The DCF valuations of the company suggest that it is currently undervalued and can turn out to be a good choice for investment.
- It is an innovation-driven Company and our R&D capability is what sets us apart from our peers. The R&D has led the development of a comprehensive product portfolio, that serves varied industries such as Power Generation and Distribution, Automotive, Thermoplastic Rubbers, FMCG, Plastics, Pharmaceuticals, Agriculture, Refrigeration, Polymers, among others.
- In addition to catering to a sizeable B2B clientele, its popular range of lubricants, greases, and coolants are sold to retail customers under the brand SAVSOL.
- The company’s R&D continued to focus on developing new products and variants for the Company’s range of Lubricating Oils, White Oils, and Transformer Oils. In addition, R&D continued to support Key Customers for condition monitoring of Lubricating Oils and Transformer Oils. Some of the new products that R&D developed are - - Heavy-Duty Diesel Engine Oil meeting API CK-4 & Cummins 20086 spec for the new generation BS-VI vehicles; - Engine oil meeting TREM Stage-IV Emission norms for Tractors which will come in force from October 2021; - Engine Oil meeting CEV-IV Emission norms for Construction Equipment Vehicles effective from April 2021; - Developed Jellies based on Natural Ingredients.
- The consistent investments in green energy production have made ts Asia’s only petroleum specialty company that is carbon positive.
- Customs duty which was at 141.5% on base oils, our key raw material, is now down to 5%.
- Prime Minister Narendra Modi’s vision of 24/7 power for all remains the primary opportunity driver for growth, fresh investment, and public spending in the transmission and distribution sector.
- Government Goals on Climate Change are boosting opportunities in Renewable Energy and Electric Vehicles. The government revised its RE targets to 220 GW by 2022 from 175 GW initially planned. Transmission and Distribution will be the bedrock of a successful RE network as these opportunities are clustered in specific usually hard-to-access locations.
KEY
NEGATIVES
- The sales of the company are not increasing since Mar'20.
- The pricing method of the company is suggesting that the company is overpriced as of now and might not be able to generate at least 15% returns on investment.
- Challenges are appearing as a result of the pandemic on International Shipping. The severe shortage of containers and surging freight rates for international shipping have caused disruption in the regular supply chain. The longer lead times, quadrupling of freight rates to some destinations, and poorer service from shipping lines could impact international business enthusiasm for some geographies.
- The financial health of DISCOMS (Electricity Distribution Companies) impacts the fluidity of the entire value chain of power projects which in turn impacts the demand and payment cycles for your Company. The latest government initiatives to finance these DISCOMS should alleviate some of these challenges experienced over past fiscals.
- Threats to the Auto lubricant segment remain the advent of EV’s in certain segments and longer drain intervals resulting from synthetic and semi-synthetic lubricants.
Q&A
SESSION
What makes this
company grow and how it is reacting towards it?
Where do profits
come from?
Is it an OPM
addict?
What is its
customers' diversification?
What is the company
doing differently from its competitors?
Does the company
have products or services with sufficient market potential to outstand?
What is the
attitude of management? (Fortune Table or Able Table)
What is the company's future plan of action?
How good is the R&D department?
Are there any habit-forming goods or services?
Is the company conservatively financed?
Are earnings strong and do they show an upward trend?
Does the company stick with what it knows?
Have retained earnings been invested well?
Has the company been buying back its shares?
Is the company’s return on equity above average?
Is the company free to adjust prices to inflation?
Does the company need to constantly reinvest in the capital?
TECHNICAL ANALYSIS
- Currently, the market is facing a correction and it would be better to wait.
- The price is closely following the fib levels.
- The market is having a strong at 200 MA, from which it can rise again.
CONCLUSION
Savita oil technologies is a good company that constantly aims to achieve higher standards through its Research and Development department. The fundamentals look good and the company is even debt-free. The management is also promising and the valuations prove that the company is undervalued. The company has great products and also expanding the market. The sales are not increasing for two years but the major game-changer was the decrease in custom duty on base oils which is the major raw material for this company.
What do you think, whether you should invest in this company and if yes, then for short term or long term?
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