Monday, 11 June 2012

Tide Water Oil Ltd

I was recently looking at an interesting company - Tide Water Oil Ltd (TWOL). 


The major product brands of TWOL are “Veedol” and “Nippon Mitsubishi”.The product range includes automotive lubricants (engine oils, gear oils, transmission oils), industrial lubricants (hydraulic oils, superclean hydraulic oils, gear oils, specialty lubricants) and automotive and industrial greases.

It has also invested in wind power (which a lot of companies have done primarily for tax benefits) but the revenues (2 cr) is negligible in the overall scheme of things. 


What is interesting is that this year the company aquired Veedol International Ltd from BP plc and has gained access to the Veedol brand in over 120 countries of the world. The company has established a subsidiary in Dubai, Veedol International DMCC, to cater to Middle East and North Africa.


Now some numbers:-
P&L Statement
FY12
FY11
FY10
FY9
FY8
FY7
Sales
1004.47
861.42
751.58
610.48
504.83
420.58
Other Income
1.98
4.72
3.51
0.05
4.35
2.39
Op Profit
        75.65
99.06
91.66
47.7
35.97
15.8
EBDIT
75.65
103.78
95.17
47.75
40.32
18.19
Interest
1.1
1.89
1.93
3.1
2.59
3.52
Depreciation
9.26
9.71
6.18
3.39
2.5
1.76
PBT
86.13
92.18
87.06
41.26
35.23
12.91
Tax
27.11
30.3
31.54
18.23
12.14
3.98
PAT
57.92
64.16
57.79
27.55
23.18
8.97
EPS
664.86
736.46
663.34
316.23
266.04
102.96


Num of shares
871,200
871,200
871,200
871,200
871,200
871,200
Dividend per share
120
60
50
30
20
15
Dividend Yield
1.78%
0.89%
0.74%
0.45%
0.30%
0.22%


Dupont Analysis






OPM(%)
7.53%
11.50%
12.20%
7.81%
7.13%
3.76%
NPM(%) -- (A)
5.77%
7.45%
7.69%
4.51%
4.59%
2.13%
Asset turnover(avg) -- (B)
2.16
3.29
3.69
3.96
3.81
3.51
RoA(%)
12.45%
24.53%
28.38%
17.88%
17.48%
7.48%
Financial Leverage -- ( C)
1.51
1.00
1.00
1.02
1.05
1.13
RoE(%) -- (=A*B*C)
18.85%
24.53%
28.38%
18.24%
18.30%
8.49%

Key Risks:
  • A lot depends on crude prices. 
  • The company is owned by Andrew Yule (a PSU),  United India Insurance Company Limited and Life Insurance Corporation of India, so there is possibly some amount of government control or "inefficiency" built in.

Valuation:-
It trades at a PE of roughly 10 times earnings and 1.9 times Price/Book. It has been a regular dividend payer and is likely to continue to do so. Also, the company is available at a much cheaper valuation as compared to its peer - Castrol, although it is much smaller in size.

Catalyst for Valuation Trigger
The Dept of Divestment, Ministry of Finance, is planning to sell Andrew Yule's, United Insurance's and LIC's stake in TWOL to a strategic investor. 
Please refer to http://www.divest.nic.in/PIM_TWOL(19April).asp for further details. 
If the sale goes through, and we don't see any push back from political front (read Mamata Banerjee, as this is a Calcutta headquartered company), then this can act as a trigger for the stock price.

Disclosure:-
Please  consult your financial advisor for your investments. This post is not an investment advice and I do not take any responsibility for your gains or losses!

6 comments:

  1. Nice post. To add to that, Standard Greases and Specialities now holds 23.24 per cent stake in the company, just 1.76 per cent short of trigerring an open offer. This company can emerge as leading contender when divestment process goes through.

    Regards

    ReplyDelete
  2. This company and Castrol are not comparable in my opinion, atleast not from the valuation point of view because of such huge difference in earnings payout. Unless tide starts paying out earnings as dividends like Castrol does i doubt if it will be rerated.

    ReplyDelete
    Replies
    1. You are right. That is why Castrol is at 25 PE and Tide at 10. The trigger for re-rating is likely when it is sold to a private party.

      Delete
  3. Just came across your blog due to Tide post...If Andrew Yule / United Insurance and LIC sell their stake .. who would be the promoter! I see a chance of a private placement or aggressive take over (question is can anyone do later)
    I agree with Prabhakar on payout front too. Market gives premium to companies who share wealth with shareholders.

    ReplyDelete
    Replies
    1. Hi Achin, They would sell to a new promoter. And it is more likely than not to be some established player in the market.
      As for valuation and comparing with Castrol, as I mentioned in my reply to him, I agree with Prabhakar. But the gap in valuation is large. A good promoter maybe a shot in the arm for the stock.

      Delete
  4. This comment has been removed by the author.

    ReplyDelete

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