Panama Petrochem - Bulk to Specialty with Capex & Maiden Con Call


Panama Petrochem, started in 1975 in Gujarat, is one of the leading manufacturers and exporters of petroleum specialty products across 80 different variants. The products are vital for various industries like inks and resins, textiles, rubber, pharmaceuticals, cosmetics, power, cables and other industrial purposes.


White Oils - Pharmaceuticals, Personal Care and Food Packaging - Bulk
Petroleum Jelly - Pharmaceuticals and Personal Care - Bulk
Transformer Oils - Power - Bulk
Ink & Coating Oils - Ink and Resins - Speciality
Rubber Process Oils - Rubber - Speciality
Textile Oils - Textile - Speciality
Industrial Oils - Other Industries - Bulk
Automotive Oils - Automobile - Bulk
Drilling Oils - ONGC & International Drillers - Speciality
Waxes - Other Industries - By-product

Manufacturing Units:

It has built state-of-the-art manufacturing and storing units in Ankleshwar (Gujarat), Daman (UT), Dahej (Gujarat) and Taloja (Raigadh). Ankleshwar also has an DSIR (Department of Scientific and Industrial Research) approved R&D Centre. Exporting to global clients in every continent, they have set-up a full-owned subsidiary in Ras Al Khaimah, UAE under the name ‘Panol Industries’, enjoying logistics advantage towards GCC and MENA regions. The manufacturing capacity, in sum total, in Indian units is 240,000 tons, which is at 100% utilization and the UAE unit has 40,000 tons which is also at a 100% utilization.

Financials: as on 25th December, 2021

Mcap – 1487cr

CMP – 245.85 (FV – 2)

March, 2021 EPS – 22.37

P/E on March, 2021 EPS – 11 (Median P/E – 11.8)

TTM EPS – 38.54

P/E TTM – 6.37 (Highest P/E – 24.9 when EPS was 8.98)

Book Value – 111 (P/B – 2.21)

PEG – 0.16

Mcap/Sales (March,2021) – 1.02

Dividend Yield – 0.81%

5 Years CAGR on Consolidated Basis –

Sales Growth – 14%

Profit Growth – 40%

ROE – 16%

ROCE – 22%

OPM – 13%

NPM – 9.35%

Debt to Reserves – 0.07

Debt to Equity – 0.07

Fixed Assets – 192 (58 in 2012 and 173 in 2020)

Cash Conversion Cycle – 94 days

WC – 89 days

CFO from March 2012 to March 2021 – Positive in 21, Negative in 13, 15 & 19

FCF Average March 2012 to March 2021 – 10.85cr

Promoters Holding – 72.13

FIIs – 3.35

DIIs – 0.02

Investment Thesis:

Valuation – This is a no brainer. All the metrics suggest decent valuations, if not undervalued in comparison to its peers & industry, and with the growth outlook guided by the management, it seems to be a good margin of safety at these levels.

Capex driven by Demand – The company is utilizing more than 100% of its capacity at Indian units (257,000 tons against capacity of 240,000 tons) and with the rising demand for its speciality and value-added products, the company has laid down the plan of increasing its capacity to 340,000 tons (increase by 100,000 tons) in the next three years. The expansion will take place in equal phases of 33,000 each year.

Bulk to Specialty – Specialty currently accounts for 65% of the revenues and is expected to be increased to 75% with the help of increase capacity and R&D from its Centre in Ankleshwar. The management is also quite focused on improving and sustaining their EBITDA margins in mid two digits (14 to 15%). The company has been receiving a lot of demand for these specialty products that caters specifically to a particular industry.

Maiden Con Call – The company has just conducted its maiden con call with the joint MD Mr. Hussein V. Rayani and CFO Mr. Pramod Maheshwari. Prior to this call, Hussein Rayani has done a couple of interviews on CNBC and ETNow in the past year, with the highlights being:

ETNow (Feb, 2021) –

High demand from pharma, ink and rubber. Sustainable demand (73,000 tons in Q3).

High crude prices do affect the business as it is a key raw material along with base oil (a derivative of crude oil). The company is mitigating this by holding monthly contract discussions with their suppliers and clients with regards to the pricing. Positive and negatives are passed on to clients. Abrupt price changes might affect the margins, but base oil has a time lag of 4 to 6 weeks as compared to direct crude daily changes.

Focus shift towards Specialty Oils by changing the product mix for better margins. Specialty now accounts for 65%, few years back it was 50%, forecasted towards 75%. Demand from ink and rubber industry for cleaner and value-added products. Back log in the R&D Centre with approved list of products from their customers. Acting as Import substitute with JIT.

CNBC (Jul, 2021) –

Ratings upgraded by CARE and ICRA from A- to A stable for long-term and from A2+ to A1 for short-term. No plan to raise debt. All capex in Indian units (100cr.) would be done from internal accruals. Capacity utilization more than 100%.

UAE Subsidiary, Panol Industries, 40,000 tons capacity running on 100% capacity and expansion of another 20,000 that is on-going and will commercialize in FY2022.

FY2022 guidance a 15% to 20% revenue growth. Margin guidance for FY2022 would be 10-12% due to the rise in crude prices. Efforts in changing product mix towards specialty oils, as mentioned in February ETNow.

Promoters are optimistic on the business prospects and have been buying from the open market. Hussein openly accepts that we will be buying every year at about 1%.

Auditor could not visit the corporate office in 2020. They are hopeful with normalcy; physical inspection would be possible. Dividend pay-outs will increase going ahead.


Industry and Peer Valuations

Crude Oil Prices

Game of Capacity and No Moats

Please continue this thread with your research, and in the meantime I will be posting key highlights from the maiden concall as well.

Disc.: researching, not invested.


What is the speciality product that they are making? And who would be the peers? Entry barriers etc? The word “speciality” is loosely used today by most chemical companies and we’ve to be cautious while evaluating if the products they are manufacture are indeed “speciality”. To me the following few things may define “speciality”:-

  1. Multi step chemistry with difficult to control reactions;
  2. Significant process efficiency through R&D etc
  3. In a chemistry, which is complex from the word “go” (flourination).

What criteria does Panama satisfy? What would their products be and who would be the peers?


The word “specialty” is different under petrochemicals. Here “specialty” usually means a product or a category that is particularly specific for a client or an industry. Panama would satisfy the process efficiency through its R&D (point) Centre situated in Ankleshwar which already has new products being developed in the pipeline for the coming years (source: investor’s presentation from Aug, 2021) and they still have further product demands from their current clients.

With regards to peers, Savita Oil Tech is the closes one. It is also into petrochemicals and oils, but lacks diversified products as compared to Panama. Another reason for taking up Panama as a research idea is their Maiden Con Call and Promoter’s openness with regards to their financial guidance and buying from the market as well.

Hope that answers your query.


Have recently added few tracking positions.

This CO product (knitting machines oils) is selling in my areas.

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Would request you if possible to add on your findings and on-ground knowledge in this thread for us to research and analyze the company. Thanks. Great to have you here.


How is speciality only mid teen margin product? Usually cos mentioning speciality means 20% ebitda margins atleast

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Correct and agreed. But like I mentioned above the ‘specialty’ in Petrochemicals if quite different from the one that is known Chemicals industry. The raw material is a by-product of crude oil, base oil, and hence being in the mid teens is appreciable, if sustained. Here the specialty is generally derived in the kind of products that you deliver, which are highly specific to a particular industry or a customer.

Recent readings on Twitter has helped me understand Petrochemicals can’t quite have a terminal value or a higher terminal multiple due its dependence on crude oil (which might get scarce going ahead) and also the threat of being replaced by other alternatives that might come in the future. But I believe if the variety of products that use Petrochemicals is looked at, it looks sustainable for next 3 to 5 years if not 10 years of long-term investing.


EBITDA margins should not define speciality or commodity. Meghmani Finechem has consistently delivered 20%+ EBITDA margins for Caustic Soda for last 4/5 years. However, that doesn’t make Caustic Soda a speciality chemical.

What makes a chemical a speciality chemical should again be defined by the complexity of its process and / or the science behind the particular molecule.

That said - not following Panama Petro.


Sir, TTM EBITDA margin is 15%. If 100% of sales came from speciality, then it would imply that the speciality products have 15% EBITDA margin.

But since speciality products are 65% of sales and overall OPM itself is 15%, speciality products would have >15% EBITDA margin. Hope this makes sense.

Disc- no holdings


Q3FY22 Concall Summary

On Gross margin: in FY18 to FY20 it is in the range of 14%. From FY21 onwards, the range is now 21%-23%. Continuous focus on introducing more specialty and value-added products has helped to drastically increase GM. Management believes this is sustainable.

On sustainability of gross and EBITDA margins: Two levers: Increased focus on moving from conventional to specialty (current ratio - specialty to conventional is 65:35) to up to 85:15 will help sustain margin. Also – there’s a pass on pricing mechanism with most customers to pass on increase or decrease in crude oil prices as well as freight costs on monthly basis helps tide over fluctuations in crude oil prices and ensures margin sustainability.

Raw material pricing and supply – Oil purchased for operations is time lagged by around 4 to 6 weeks compared to spot prices. 60-70% of base oil requirement is managed through supply contracts so the company has not experienced any major disruptions in the supply (notwithstanding the international freight situation)

COVID impact in Q3 – A yearly demand forecast is received from customer for offtake. In Q3, due to lockdowns there was slowdown in offtake. Company expects that in Q4, this will be taken up. Healthy order book status for next 2 quarters is confirmed by the management.

R&D focus – management repeatedly emphasized on the R&D focus to keep adding new products which are more environment friendly, more cleaner and greener products to meet market demand for better products. The demand also stems from stringent regulations. for example - clients are demanding almost zero aromatic content oils - (regulation says <3%). Company’s R&D staff in Ankleshwar location develops these products. These products are finding traction in the export market and with MNC customers.

Move from conventional to specialty – target from current 65% to 80%-85% specialty. New product requirements come from the customers and to our R&D team and they keep on providing them new samples, with new formulations, meeting their requirements. So it is an ongoing process. It is not an overnight change. There is a continuous addition of new products in our portfolio. We are getting into more specialized segments and this has really helped us to improve our margins. So there is a continuous work going on backend with our team and which has we’ve got good results out of that and we will definitely be continuing this focus, more focused on this part of our business strategy. New specialty products are added specifically in textile industry, ink industry, drilling industry. Company is planning gradual changeover - about 3% to 5% every year to replace the existing conventional products with the specialty products. So to reach 85% - it would be in the next five years.

New logos – New big clients are added. Names not disclosed. Current revenue contribution from these contracts are at 5% to 6%.


Key Takeaways from the Concall:

  1. Management is confident about maintaining sustainable EBITDA in the range of 12% and 14% despite volatility across crude prices.

  2. The drastic fall in employee costs, from 16 crores to 4 crores, was basically due to performance based incentives that were paid in previous quarters. The employee cost would be range bound at 4 crores to 5 crores.

  3. They have added new big names in their list of clients in this year and most of the business with these new customers is on contract basis, with the pricing mechanism of a monthly basis and a quarterly contract.

  4. They are running at over 100% capacity utilization at their subsidiary Panol Industry. The Panol company is more focused on servicing specialized products for the specialized industries in the MENA region. The margins of the same are to get better from current 9% to 12%.

  5. Ramesh Damani sir’s question was on one about the price realization in the next quarter as they usually have monthly time lag on contract basis, and second one being on the reason behind volume slowdown. On the pricing, management has guided that going further as well the rise in crude prices will transferred to the customers. On volume de-growth, it is primarily due to lockdowns.

  6. They have quite a healthy order book at hand and the following quarters look promising.

  7. Capex plans for FY2023 remain the same as mentioned in their maiden concall. Increase of the capacity by 30% from 240,000 to 340,000 at a spend of 100 crores over the next three years distributed equally.

  8. There is no long-term bet. Some short-term debt is related to working capital and is well-under control.

  9. The new contracts will amount to about additional 5% to 6% of the revenue going forward.

  10. R&D team is working at full force with new products and categories for various customers. The guide towards specialty has been maintained from the maiden concall going towards 85% from the current 65% product mix say over the next five years. Textile industry (inks) is the one where new products are being introduced.

To note is: most of these questions were from ‘Individual Investors’ except a few of firms or say non-individuals at the end.

The promoters across the board have reduced their holdings. It might look miniscule individually but in totality it is a reduction of 1.02%. Reasons unknown.

September 2021

December 2021

Also, to notice except for the family members and related parties, Ittefaq Ice and Cold Storage Company Pvt. Ltd. has been holding more than 5% in the business. Particular disclosures about the company are not provided apart from being one of the few shareholders who hold more than 5% individually and Amirali Essabhai Rayani (one of the promoters) being the director of the company. The purpose and relation is unknown.

Annual Report 2021

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Valuations look really attractive. Based on DCF and EVA based calculations, intrinsic values are higher than CMP.

In addition,

  1. EVA / Invested capital is around 96% based on last 10 years data
  3. FCFF / interest expenses is more than 10
  4. FCFF yield is around 10% which is higher than AAA bond yields
  5. CFROI in last 3 years is more than 20%, much higher than WACC.
  6. FCFF / total capital employed is more than 25% in last year.
  7. Highest score of 4 under fragility scorecard
  8. SSGR > Sales growth
  9. CFO / PAT is roughly 90%
  10. 16% CAGR in ROIC in last 10 years
  11. CMP is getting near the 52 weeks high (currently CMP is at 73% of 52 w high price).

I think its an opportune time to invest. Any views from experts?

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I tried doing reverse DCF for Panama Petrochem stock, just to see with the current price, what are the implied market expectations. The results are astonishing and clearly indicate that at the current level, market may not have fully optimized its potential in reflecting its true worth as far as current price is concerned. It also checks out almost all-important parameters of my checklist which I published few days ago here:

Portfolio of a novice investor - Q&A: Questions & Answers / Portfolio Q&A - ValuePickr Forum

Sales Growth Rate:


Historical sales growth rate (CAGR) for the company over last 10 years has been 15% but the market is implying only 2%. Looking at this wide difference, it seems that market hasn’t valued its potential to the full extent.



Historical growth rate for ROIC is around 18.5% but market is implying degrowth in ROIC which is reasonable as with this kind of company without any specific competitive advantage, ROIC may not sustain for a very long time.

Invested Capital


Historically, Invested capital has grown by 12% but market is implying only 3% which can again be a sign of undervaluation like the sales growth.

Disc: Invested and biased.

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