Sample Report

Darshan R. Nikam

Stock data:
Current Price (29/04/2009): 72.35
(Figures in Indian Rupees)

Panama Petrochem Ltd key data:

Ticker: 524820 Country: India
Exchanges: BOM Major Industry: Chemicals
Sub Industry: Miscellaneous Chemicals
2008 Sales 2,338,569,090 Employees: N/A
(Year ending Jan 2009)
Currency: Indian Rupees Market Capital: 344,530,700
Fiscal Yr Ends: March Shares Outstanding: 4,762,000
Share Type: Ordinary Closely Held Shares: 1,842,401

Panama Petrochem Limited,

Registered Office: Plot No.3303, GIDC Estate, Ankleshwar- 393002, Gujarat.

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1. Overview

1.1. Introduction
Panama Petrochem Ltd. is one of India’s leading manufacturers and exporters of
petroleum specialty products. The Company’s focus is to consistently provide quality
services, and has been doing so right since 1975. The Company’s petroleum products are
in great demand for various industries like Inks and Resins, Textiles, Rubber,
Pharmaceuticals, Cosmetics, Power, Cables and other different industrial purposes.
Panama Petrochem Limited is also listed on the Mumbai Stock Exchange.

Panama Petrochem Ltd. manufactures more than 80 product variants vital for nearly six
to seven industry segments. The company is in league with the giants of each industry.
The company is in collaboration with Lubcon, Germany for distribution of their
specialized products. The company also furnishes various Power Generation Boards and
Atomic Research Centers with their required products. The company has excellent
policies to serve their domestic as well as overseas customers.

The company has a fully equipped R&D Center at Ankleshwar (Gujarat) unit where
continuous efforts are made to formulate new and value-added products. The company
has enough expertise to maintain its quality of each of the products which is why the
company has received a great response from customer’s end,

By exploring international markets, Panama Petrochem Ltd. continuously aims to bring

about a rise in the exports. The Company exports variety of our products like Petroleum
Jelly, Liquid Paraffin, Transformer Oil and Rubber Process Oil to different countries like
USA, UK, Europe, Middle East, Australia, African Sub-continent, South East Asia etc .
Good infrastructure for the company and state-of-the-art Research and Development
Center helps the company to simultaneously cater to domestic and international needs.

The Company’s business is spread across India in the form of four manufacturing plants
at Ankleshwar (Gujarat), Daman (Union Territory), Marol (Mumbai) and Taloja (Dist.
Raigadh).

1.2. Future Outlook

The Company is planning to expand its operations to withstand against the negative
market forces. During the year 2007-2008, the Company has achieved a remarkable
increase in the turnover. There are considerable profits from all the four plants of the
company and the Company is hopeful to override the adverse effects of the price
fluctuations in the petroleum industry by resorting to bulk purchases and cost control measures.

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2. Financial Highlights
Unaudited financial results for the quarter ended December 31, 2007 as per Indian
GAAP. In the tables below, “Qtr ended 30/09/07” refers to the three month period
ended September 30, 2007 and “Qtr ended 31/12/07” refers to the three month period
ended December 30, 2007.

2.1. Quarterly Results In Brief

Dec ' 08 Sep ' 08 Jun ' 08 Mar ' 08 Dec ' 07
Sales 78.23 122.94 98.06 57.57 72.67
Operating
11.69 15.50 9.65 6.21 6.21
profit
Interest 1.51 3.11 1.27 0.41 1.07
Gross profit 7.36 9.35 8.45 4.34 5.82
EPS (Rs) 10.86 13.75 14.76 7.47 11.53

2.2. Ratios

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Per share ratios
Adjusted EPS (Rs) 29.73 21.18 16.68 7.03 3.44
Adjusted cash EPS (Rs) 30.51 21.94 17.67 7.75 4.20
Reported EPS (Rs) 31.07 24.61 15.35 8.30 4.38
Reported cash EPS (Rs) 31.86 25.37 16.34 9.01 5.14
Dividend per share 4.00 3.00 3.00 2.50 1.50
Operating profit per share (Rs) 43.69 31.91 24.74 11.36 6.72
Book value (excl rev res) per share (Rs) 106.34 71.41 50.30 38.42 29.39
Book value (incl rev res) per share (Rs.) 106.34 71.41 50.30 38.42 29.39
Net operating income per share (Rs) 491.14 462.03 256.45 170.07 134.44
Free reserves per share (Rs) 96.34 61.41 40.30 27.40 19.17
Profitability ratios
Operating margin (%) 8.89 6.90 9.64 6.68 4.99
Gross profit margin (%) 8.73 6.74 9.26 6.26 4.49
Net profit margin (%) 6.31 5.31 5.97 4.86 3.25
Adjusted cash margin (%) 6.19 4.73 6.88 4.54 3.12
Adjusted return on net worth (%) 27.95 29.66 33.16 18.31 11.71
Reported return on net worth (%) 29.22 34.47 30.51 21.59 14.90
Return on long term funds (%) 41.39 44.76 47.31 28.39 20.43
Leverage ratios
Long term debt / Equity - 0.01 0.01 0.01 0.01
Total debt/equity 0.13 0.16 0.38 0.38 0.70
Owners fund as % of total source 88.24 85.61 71.98 72.35 58.73

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Fixed assets turnover ratio 25.85 30.13 17.33 12.18 9.54

Liquidity ratios
Current ratio 1.46 1.45 1.69 1.92 2.15
Current ratio (inc. st loans) 1.31 1.28 1.21 1.27 1.17
Quick ratio 0.60 0.89 0.93 0.99 1.46
Inventory turnover ratio
2.73 4.71 3.83 3.80 5.46

Payout ratios
Dividend payout ratio (net profit) 15.06 14.25 22.28 31.51 38.62
Dividend payout ratio (cash profit) 14.69 13.83 20.93 29.01 32.90
Earning retention ratio 84.26 83.43 79.50 62.84 50.85
Cash earnings retention ratio 84.67 84.00 80.65 66.26 59.75
Coverage ratios
Adjusted cash flow time total debt 0.46 0.54 1.11 1.89 4.91
Financial charges coverage ratio 4.50 4.38 5.12 4.66 6.35
Fin. charges cov.ratio (post tax) 4.19 4.37 4.33 4.55 5.77
Component ratios
Material cost component (% earnings) 86.37 86.49 91.16 86.54 91.81
Selling cost Component 4.72 3.00 1.86 1.62 2.45
Exports as percent of total sales 22.11 18.48 6.10 5.36 5.01
Import comp. in raw mat. consumed 72.69 85.31 83.17 54.47 59.21
Long term assets / total Assets 0.03 0.03 0.05 0.08 0.10
Bonus component in equity capital (%) - - - - -

2.3. Dividend
Year Month Dividend (%)
2008 Jul 40
2007 Jul 30
2006 Jul 30
2005 Jul 9
2005 Feb 16
2004 Jul 15
2002 Sep -

3. Accounting Policies
Set out below are the significant accounting policies to the Unaudited Consolidated
Statement of Operations and the Consolidated Statement of Operations and the
Consolidated Balance Sheet.

3.1. Principles of consolidation

Consolidation has been carried out in compliance with the applicable Accounting
Standards issued by the Institute of Chartered Accountants of India.

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3.2. Other Significant Accounting Policies

3.2.1. Basis of Preparation of Financial Statements

The financial statements have been prepared under the historical cost convention, in
accordance with the Accounting Standards notified under the Companies (Accounting
Standards) Rules 2006 and the provisions of the Companies Act 1956, as adopted
consistently by the company.

3.2.2. Use of Estimates

The preparation of financial statements requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities as at the date of the financial statements and reported amounts of
revenues and expenses for the year. Actual results could differ from estimates.

3.2.3. Fixed Assets

Fixed Assets are recorded at historical cost along with capitalized portion of specific and
allocated expenses. Fixed Assets acquired and constructed are stated at historical cost
including attributable cost and incidental expenses, erection/commissioning expenses
for bringing the asset to its intended use.
The carrying amount of assets is reviewed at each Balance Sheet date to determine if
there is any indication of impairment thereof based on the external/internal factors. An
impairment loss is recognized wherever the carrying amount of an asset exceeds its
recoverable amount, which represents the greater of their ‘Value in use’. The estimated
future cash flows are discounted to their present value at appropriate rate arrived at after
considering the prevailing interest rate & weighted average cost of capital.

3.2.4. Depreciation / Amortization

Depreciation on fixed assets is provided on straight-line method at the rates and in the
manner prescribed in Schedule XIV to the Companies Act 1956. Additions are
depreciated on pro-rata basis for number of days used during the year at the rates
prescribed in Schedule XIV of the Companies Act, 1956. Depreciation on assets sold,
discarded or demolished during the year is being provided at the rates up to the day on
which such assets are sold, discarded or demolished.
Pursuant to Accounting Standard 26 on Intangible Assets, Software Development
Charges are amortized over the useful life of the assets over a period not exceeding 3
years.

3.2.5. Valuation of Inventories

Inventories of Raw Materials, Packing Materials, Finished Goods and Traded Goods are
stated at Cost or Net Realizable value whichever is lower on FIFO basis. Cost comprises

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of all cost of purchase, cost of conversion and other costs incurred in bringing the
inventories to their present location and condition, excluding Cenvat Credit/Counter
Veiling Duty (CVD), VAT set off, Discounts and Rebates. The excise duty in respect of
closing inventory of finished goods is included as part of finished goods. Customs duty
on stock lying in Bonded Warehouses is included in cost. Provision for obsolescence is
made wherever necessary.

3.2.6. Investments

Long term Investments are valued at cost. However, provision for diminution in value if
any, is made to recognize a decline other than temporary in the value of investments.

3.2.7. Foreign Exchange Transactions

Foreign Currency transactions are accounted at exchange rates on the date of

transactions. Premium on forward cover contracts in respect of import of raw materials
is charged to Profit & Loss account over the period of contract. Amounts payable and
receivable in foreign currency as at the Balance Sheet date, not covered by forward
contracts, are reinstated at the applicable exchange rates prevailing on that date. All
exchange differences arising on monetary & non-monetary transactions including
liability towards import of fixed assets not covered by forward contracts are charged to
Profit & Loss account.

3.2.8. Retire Benefits

The Company has defined contribution plans for post employment benefits namely
Provident Fund. Regular contributions are made to Provident Fund and charged to
revenue.
The Company has a defined benefit plans namely Gratuity, the liability for which is
determined on the basis of an actuarial valuation at the end of the year. Gains and losses
arising out of actuarial valuations are recognized immediately in the Profit & Loss
Account as income or expense.

3.2.9. Borrowing Costs

Borrowing Costs that are directly attributable to the acquisition, construction or

production of qualifying assets are capitalized till the month in which the asset is ready
to use as part of the cost of that asset. Interest on working capital is charged to revenue
accounts.

3.2.10. Leases

Lease rental in respect of assets taken on “Operating Lease” are charged to Profit & Loss
Account over the period of lease term.

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3.2.11. Provisions & Contingencies

The Company creates a provision when there is a present obligation as a result of past
event that probably requires an outflow of resources and a reliable estimate can be made
of the amount of obligation. A disclosure of contingent liability is made when there is a
possible obligation or a present obligation that will probably not require outflow of
resources or where a reliable estimate of the obligation cannot be made.

3.2.12. Prior Period Adjustment

All identifiable items of Income and Expenditure pertaining to prior period are
accounted through “Prior Period Adjustment Account”.
Prior period adjustments on account of errors and omissions of transactions relating to
prior periods are separately disclosed in the current year’s financial statements below the
line so that the impact of prior period adjustments on the current year financial
statements can be ascertained.

3.2.13. Revenue Recognition

Revenue from sale of goods is recognized when the significant risks and rewards in
respect of ownership of the goods transferred to the customer and is stated net of excise
duty, trade discounts, sales return and sales tax where ever applicable. Dividend is
recognized on receipt basis.

3.2.14. Taxes on Income

The accounting treatment for the Income Tax in respect of the Company’s income is
based on the Accounting Standard on “Accounting for Taxes on Income” (AS 22) as
notified by the Companies (Accounting Standards) Rules 2006. The Provision made for
Income Tax in Accounts comprise both, current tax and deferred tax.
Deferred tax is recognized for all timing differences; being the differences between the
taxable income and accounting income that originate in one period and are capable of
reversal in one or more subsequent periods. Such deferred tax is quantified using the tax
rates and laws enacted or substantively enacted as on the Balance Sheet date. The
carrying amount of deferred tax asset/liability is reviewed at each Balance Sheet date
and consequential adjustments are carried out.

3.2.15. Earning Per Share

Basic earnings per share are calculated by dividing the net profit or loss for the period
attributable to equity shareholders by the weighted average number of equity shares
outstanding during the period. Partly paid equity shares are treated as a fraction of an
equity share to the extent that they were entitled to participate in dividends relative to a
fully paid equity share during the reporting period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the
period attributable to equity shareholders and the weighted average number of shares

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outstanding during the period are adjusted for the effects of all dilutive potential equity
shares.

3.2.16. Cash Flow

Cash Flow statements are prepared in accordance with “Indirect Method” as explained in
the Accounting Standards on Cash Flow Statements (AS 3) notified under the Companies
(Accounting Standards) Rules, 2006.

3.2.17. Segment Reporting

The accounting policies adopted for segment reporting are in line with the accounting
policy of the Company. Segment Revenue, Segment Expenses, Segment Assets and
Segment Liabilities have been identified to segments on the basis of their relationship to
the operating activities of the segment. Revenue, expenses, assets and liabilities which
relate to the Company as a whole and are not allocable to segments on reasonable basis,
have been included under “Unallocated Revenue/Expenses/Assets/Liabilities”.

4. Notes to Accounts
1. Pursuant to the Special Resolution passed in the Annual General Meeting held on
29th September, 2007 the Company has received 10% upfront money from the
promoters amounting to Rs.63.75 Lacs against the issue on preferential basis of
4,25,000 Share Warrants carrying an option/entitlement to subscribe equivalent
number of equity shares of Rs.10 each on a future date not exceeding 18 months
from the date of issue at a conversion price of Rs.150 per share including
premium of Rs.140 per share.
The said amount was initially utilized by the company as a working capital
finance which was than parked in Fixed Deposit with Scheduled Bank.

2. During the year, 5,00,000 equity shares were allotted to M/s Acme Craft Pvt. Ltd
on option being exercised to convert share warrants into equivalent number of
equity shares at a conversion price of Rs.153 per share including a premium of
Rs.143 per share and the said amount was utilized for the working capital
requirements.

3. Contingent Liabilities

As at the year ended As at the year ended

31/03/08 (Rs.) 31/03/07 (Rs.)
(a) Disputed income 1.05 Lacs 5.15 Lacs
tax liability in
appeal
(b) Bank Guarantee 57.74 Lacs 80.08 Lacs
(c) Letter of Credit 7763 Lacs 5520 Lacs
Facility

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4. A Scheme of Arrangement for De-merger of Investment Division of Mobil

Petrochem Pvt. Ltd to Ittefaq Ice & Cold Storage & Co. Pvt. Ltd and Merger of
Residual Business of Mobil Petrochem Pvt. Ltd with Panama Petrochem Ltd. has
been proposed by the Board of Directors of these Companies. The scheme has
been approved by Bombay Stock Exchange Ltd vide their letter dated 6th June
2008. However, the said scheme is subject to the approval of the Honorable High
Court of Mumbai & Ahmedabad and other competent authorities, if any.
5. Excise duty Liability on Manufactured goods lying as on 31st March 2008 is
provided at Rs.39.96 lacs (Previous year Rs.36.72 lacs). Customs duty on imported
materials/goods lying in customs bonded warehouse as on 31st March 2008 is
provided at Rs.678.16 lacs (Previous year Rs.209.26 lacs)

6. Sundry Creditors include Rs.NIL (Previous Year – Rs.0.42 lacs) due to Small
Scale Industrial Undertakings. The disclosure is based on the information
available with the company regarding the status of suppliers. No interest is due to
such small scale industrial undertakings. List of Small Scale Industries - Ganga
Rasayani Pvt. Ltd.

7. Sales are accounted on dispatch of goods net of excise duty, rebates and discounts

8. Inter Unit Transfer & Captive Consumption

Inter Unit transfers are valued, either at factory cost of the transferor unit or at
sales price plus transport and other charges. Inter Unit transfers amounting to
Rs.1347.72 Lacs (Previous Year Rs.1094.59 lacs) and Captive Consumption
amounting to Rs.NIL (Previous Year Rs.1.40 lacs) totaling to Rs.1347.72 lacs
(Previous year Rs.1095.99 lacs) have been reduced from both purchases and sales
during the year. The method adopted is similar to the method adopted in
previous year.

9. As per the past practice consistently followed by the company, all indirect
expenditure incurred at the Head Office are allocated to the Daman unit on the
basis of the turnover ratio for the purpose of working out the profit of the said
unit for availing deduction u/s 80IB.

10. Current assets, loans & advances are approximately of the value stated, except
otherwise stated, if realized in the ordinary course of business. The provision of
all known liabilities, is adequate and not in excess of the amounts reasonably
necessary. Balance in sundry debtors, loans and advances, deposits, current
liabilities and unsecured loans are subject to confirmations.

11. Sundry Debtors include Rs.86.80 lacs (P.Y. Rs.84.66 lacs) due for a period
exceeding 2 years as on the balance sheet date. In the opinion of the
management, the same are good and recoverable and hence the same has not
been provided for.

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5. Recent News
Panama Petrochem Q3 net rises marginally (29th Jan. 2009).

Panama Petrochem reported a marginal rise in standalone net profit

for the quarter ended December 2008. During the quarter, the profit of
the company rose 2.78% to Rs 51.71 million from Rs 50.31 million in the
same quarter previous year.

Net sales for the quarter rose 7.65% to Rs 782.30 million, while total
income for the quarter rose marginally 2.79% to Rs 754.06 million, when
compared with the prior year period.

The company reported earnings of Rs 10.86 a share during the quarter, registering 5.81%
decline over previous year period.

Quarterly Results - Standalone (Rs in mn)

As at Dec - 08 Dec - 07 %Change
Net Sales 782.30 726.74 7.65
Net Profit 51.71 50.31 2.78
Basic EPS 10.86 11.53 (5.81)

During the quarter, the operating margin of the company rose by 640.87 basis points to
14.95% compared with the previous year period. Interest cost increased 40.69% to Rs
15.11 million while depreciation cost rose 2.19 times to Rs 1.58 million over previous year
period.

Shares of the company gained Rs 1, or 1.42%, to trade at Rs 71.35. The total volume of
shares traded was 4,476 at the BSE (3.04 p.m., Thursday).

6. Shareholding Pattern

SHAREHOLDING PATTERN As On 31st March 2008

Category of shareholder No. of Total Total no. of Total

shareholders no. of shares held in shareholding as
shares dematerialized a % of total no.
form of shares
As a As a %
% of of
(A+B) (A+B+C)
(A) Shareholding of Promoter and Promoter
Group

(1) Indian

Individuals / Hindu Undivided Family 59 1554055 1532055 32.63 32.63

Bodies Corporate 2 288346 288346 6.06 6.06

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Sub Total 61 1842401 1820401 38.69 38.69

(2) Foreign

Total shareholding of Promoter and

61 1842401 1820401 38.69 38.69
Promoter Group (A)

(B) Public Shareholding

(1) Institutions

Mutual Funds / UTI 2 13800 - 0.29 0.29

Financial Institutions / Banks 1 300 - 0.01 0.01

Foreign Institutional Investors 2 121397 121397 2.55 2.55

Sub Total 5 135497 121397 2.85 2.85

(2) Non-Institutions

Bodies Corporate 191 824155 317755 17.31 17.31

Individuals

Individual shareholders holding nominal

4749 1057939 889704 22.22 22.22
share capital up to Rs. 1 lakh
Individual shareholders holding nominal
16 846220 746220 17.77 17.77
share capital in excess of Rs. 1 lakh

Any Others (Specify) - - - - -

Clearing Members 34 10147 10147 0.21 0.21

Non Resident Indians 41 45641 45641 0.96 0.96

Sub Total 5031 2784102 2009467 58.46 58.46

Total Public shareholding (B) 5036 2919599 2130864 61.31 61.31

Total (A)+(B) 5097 4762000 3951265 100 100

(C) Shares held by Custodians and against

- - - - -
which Depository Receipts have been issued

Total (A)+(B)+(C) 5097 4762000 3951265 - 100

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7. Financial Statements

7.1. Profit and Loss Account

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Income:
Operating income 233.88 196.92 109.30 72.48 50.57
Expenses
Material consumed 197.40 174.05 94.09 64.26 44.80
Manufacturing expenses 0.40 0.32 0.32 0.27 0.24
Personnel expenses 0.68 0.60 0.41 0.47 0.42
Selling expenses 11.04 5.91 2.03 1.18 1.24
Adminstrative expenses 3.55 2.45 1.89 1.46 1.35
Expenses capitalised - - - - -
Cost of sales 213.07 183.32 98.75 67.64 48.05
Operating profit 20.81 13.60 10.55 4.84 2.53
Other recurring income 0.58 0.44 0.15 0.20 0.05
Adjusted PBDIT 21.38 14.04 10.70 5.05 2.57
Financial expenses 4.75 3.21 2.09 1.08 0.41
Depreciation 0.37 0.32 0.42 0.30 0.25
Other write offs - - - - 0.04
Adjusted PBT 16.25 10.51 8.19 3.66 1.88
Tax charges 2.10 1.48 1.08 0.66 0.59
Adjusted PAT 14.16 9.03 7.11 3.00 1.30
Non recurring items -0.16 1.72 -0.51 0.54 0.35
Other non cash adjustments 0.80 -0.26 -0.08 -0.01 -0.01
Reported net profit 14.80 10.49 6.52 3.53 1.64
Earnigs before appropriation 33.16 20.90 12.54 7.49 5.13
Equity dividend 2.23 1.50 1.46 1.11 0.64
Preference dividend - - - - -
Dividend tax - - - - -
Retained earnings 30.93 19.41 11.08 6.37 4.49

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7.2. Balance Sheet

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Sources of funds
Owner's fund
Equity share capital 4.76 4.26 4.26 4.26 3.76
Share application money 0.64 2.27 - - -
Preference share capital - - - - -
Reserves & surplus 45.88 26.17 17.18 12.12 7.30
Loan funds
Secured loans 6.68 5.05 7.30 4.86 3.76
Unsecured loans 0.06 0.06 1.05 1.40 4.01
Total 58.02 37.81 29.79 22.64 18.84
Uses of funds
Fixed assets
Gross block 9.11 6.54 6.31 5.95 5.30
Less : revaluation reserve - - - - -
Less : accumulated depreciation 3.10 2.79 2.65 2.23 1.93
Net block 6.02 3.74 3.65 3.72 3.37
Capital work-in-progress - 0.39 - - -
Investments 0.02 0.02 0.02 0.02 0.02
Net current assets
Current assets, loans & advances 165.41 109.06 64.19 39.39 28.89
Less : current liabilities & provisions 113.43 75.41 38.09 20.50 13.45
Total net current assets 51.98 33.65 26.10 18.89 15.43
Miscellaneous expenses not written - - - 0.01 0.01
Total 58.02 37.81 29.79 22.64 18.84
Notes:
Book value of unquoted investments - - 0.02 0.02 0.02
Market value of quoted investments 0.05 0.04 - - -
Contingent liabilities 2.01 0.85 - 0.07 0.07
Number of equity sharesoutstanding
47.62 42.62 42.62 42.62 37.62
(Lacs)

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8. Panama Vs Peers
Company Last (Rs) Mkt Cap (Rs cr)

Panama - 34

NOCIL 17.25 277

Andhra Petrochem 11.5 98

BASF 214.4 604

Clariant Chemicals 189 504

Tyche Ind 11.1 11

H K Finechem 14.5 14

Ritesh Intl 3.56 3

Modipon 10.15 8

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