GULF OIL CORP. LTD......

Pick of the week
Gulf Oil Corporation Ltd
BSE Code: 506480 CMP: Rs.27.90
Introduction: Gulf Oil Corporation Ltd is a juxtaposition blend of diverse business areas such as industrial explosives, mining products, lubricants, specialty oils and chemicals, active pharmaceutical ingredients (bulk drugs) and pharmaceutical formulations. Various divisions and subsidiaries are:(a) Industrial Explosives Division: Explosives/Accessories, Metal Cladding, Defense Products and Wind Energy(b) IDL Consultant Division: Mining Service and Construction Service(c) Specialty Chemicals Division: Active Pharma Ingredients and Formulations(d) Lubricants Division: Automotive Lubricants, Industrial Lubricants, and Petroleum Products(e) Subsidiaries: IDL Agro and IDL Buildware.
Shareholding Pattern: The promoters hold 45.73% while the general public holds 54.27%. Gulf Oil International Mauritius Inc is the only promoter of the company and which holds 45.73% of the shares of the company.
Financials: In Q3FY09, the total income of the company showed a rise of around 18% to Rs.216.01 Cr as against Rs.196.6 Cr in the same period previous year. However the net profit of the company suffered due to higher cost of raw material and most importantly on account of provisions for exchange fluctuations of Rs.6.03 Cr and higher interest charges. The net loss of the company for the Q3FY09 came out to be Rs.5.6 Cr as against Rs.6.54 Cr in the same period previous year. For the nine months period ended 31st December, 2009, the turnover increased by 26% to Rs.748 Cr and Profits after tax was Rs.1.78 Cr after provisions for exchange fluctuations of Rs.17.29 Cr.
Investment Rationale:1. Gulf Oil Corporation Ltd is a Hinduja Group Company. It has its explosives factory in Hyderabad, spread over 600 acres. Company had planned to set up knowledge city in 100 acres. It is reliably learnt now that the Government has given approval to shift this factory out of Hyderabad. Company has already given huge VRS package to around 4700 employees and now just 250 employees are there at Hyderabad factory. Apart from Knowledge City, company will also be constructing residential and commercial complex.2.The company received necessary approvals from the Karnataka Government for setting up of an IT SEZ on its land situated at Yelahanka, Bangalore on the Bangalore—Hyderabad Highway. The project assumes significance as it is strategically situated 14 Km from the new Bangalore International Airport. This will have a supporting infrastructure for Hospitality, Shopping, and Entertainment in an international ambience.3.The Company is also planning to finalize development plans for its land in Bhiwandi and DelhiThe Board of Directors of the Company had earlier approved a restructuring of the Company’s business in accordance with which, the Specialty Chemicals Division of the Company would be transferred effective from April 01, 2008 to IDL Specialty Chemicals Ltd (formerly IDL Agro Chemicals Ltd), a wholly owned subsidiary. The Scheme of Arrangement for restructuring has also been approved by the Shareholders and Unsecured Creditors.5.The company’s lubricant division came out with the new products in the name of Gulf Cargo Power and Gulf Super Duty. It also entered into new segments like Diesel Generator sets, largely used by telecom sectors, with a new range of lubricants co-branded with Ashok Leyland.6.The company’s explosives division reported a robust growth of 44% Y-o-Y. This robust growth in sales was due to increased sales both in the domestic and export markets. This division received a new contract from Coal India Ltd, for the supply of explosives to their subsidiaries with effect from 1st December, 2008. The new order has a price variation mechanism linked to raw material prices which would help stabilize margins in the subsequent quarters. Exports were strengthened with new orders from South East Asia, Easter Europe and Africa. This division is progressing well on its goal of achieving 20% of turnover of exports.7.The company’s mining division is doing excellently well which included the activities from the newly started Nigahi mine of NCL (a subsidiary of Coal India Ltd) in addition to Dudhichua mine in the same region. The division also started its first Manganese ore mining work of Adhunik Group in the Barbil region after completing the mine development work. The mine infrastructure work at Utkal Alumina Ltd is progressing well after a good start last year. Due to the high technical standards and quality of work, the Division is being offered various contracts in the mining and construction sectors. Currently the order book position of the Division is valued at Rs.500 Cr.8.The company is planning to raise US$ 100 million by way of issue of GDR/ADR/FCCB or otherwise (as was passed by the shareholders last year).
Conclusion: The Company is going to benefit from the fall in the price of major raw materials and this is expected to show up in the following quarters’ results. In the commercial vehicles segment the Division continued to achieve significant growth with higher market penetration of Ashok-Leyland Gulf co-branded lubricants led by India’s first long drain diesel engine oils with extended service period of 36000 Kms.Gulf brand promotion activities were stepped up with sponsorship of two wheeler racing events including National Dirt Track Championship. Economy standi-pack pouches were launched to cater to diesel segments in rural markets and the response has been very encouraging.In future the restructuring of the Specialty Chemical division, will drive its revenue growth. The Specialty Chemicals Division has obtained Certificate of Suitability for a cardiovascular drug, Enalapril Maleate from the European Directorate for the Quality of Medicine and HealthCare. This would give access for the molecule in the European markets. Application has been filed for a Cephalosporin for Certificate of Suitability with EDQM.In 2007, its share price touched Rs.350. It has also paid 75% dividend last year. The shares are trading near its book value of Rs.29 and 52-week low price of Rs.24.80. Hence there is minimum downside from the current price of Rs.27.90.
Chart-Talk: From the charts it is found that the stock is above its major support of Rs.27.5 and is in the highly oversold region. Though RSI and ROC is not indicating a clear trend however, MACD and Bollinger Bands are in super buy mode. However, since this is more or less a momentum counter like PSTL, it is move when the markets start to move up in tandem. Hence buy the scrip as long as it is above Rs.27.5 and don’t average if its falls below that levels unless you get some special positive signals.