CALS REFINERY -: Not meant for the Conservative investor…

CALS REFINERIES, which is topping Volumes in Bombay Stock Exchange, is one of the most talked in penny stock segment. I have seen in many forums and even brokers are recommending their client as a Multibagger stock just based on the humongous plans made by the company. It’s from unlisted Spice Energy group, which has its presence in Exploration, Mining and Refining sectors. Promoters acquired listed NBFC and planned to set up crude refinery. Equity floated to 794 Cr through GDR issue. Before giving any opinion on this stock lets first dig up into details of plans made by the company.

Cals Refineries plans to Implement a 20000 Cr, 4.8MMTPA refinery project at Haldia (East coast, West Bengal) by June 2011 in Phase I for which it will be shipping existing plants from Germany/Canada/US to India and adding more secondary processing units. Cals will be implementing another 4.8 MMTPA (100,000 BPD) by July 2012 taking the total capacity to 9.6 MMTPA (200,000 BPD) by July 2012.Lower capital cost/bbl and faster implementation than Greenfield project is management’s reasoning for a second-hand refinery. Company has also planned for phase III as of now I wont go deep into it. The refinery project would involve moving basic crude distillation units (CDU) from a Petro Canada plant and a refinery in Kansas, USA, moving secondary processing units from Bayernoil Ingolstadt refinery (Germany) and adding new Propylene and Benzene units .The refinery being brought from Germany is under operations from late 60's and units from PetroCanada and Kansas (US) are under operations from 70’s, these refinery will be dismantle and than transported through ship and assembled at Haldia. The refinery will be relocated by Ventech Corp USA, which has done similar relocation projects, Looking at the Management of Cals having vast experience & expertise, Chairman of Cals Refineries, Mr. M.S. Ramachandran, was Chairman of Indian Oil Corporation (I.O.C.) having over 38 years of experience in the Oil and Gas industry. Ramesh Bhosale is Chief Financial Officer, Independent Non-Executive Director of Cals Refineries Ltd. He has over 25 years of experience in the field of Costing, Finance, Accounts, MIS, Merger & Acquisition and Project Finance. Cals has some more achivement on its name like Crude oil supply contract with BP (World’s Second petroleum Company) & Sign MOU for 1000 acres land, already allotted 400 acres.

Now let look at the other side of it, there are some important facts that should be stressed on before making any position in this stock.

1. Due to economic meltdown, company has not able to achieve financial closure (FC) till now. Hence for the project to be completed on time look doubtful to me.
2. Shareholding pattern of Cals: - Interestingly, data available with BSE shows that Spice is the only promoter of CALS, controlling 0.11 per cent stake through a group outfit called SRM Exploration. But from the last two years the promoters of Spice Mr Sanjiv Malhotra, Mr Ravi Chilukuri (CEO) and Mr Gagan Rastogi and their families are claming to actually controlled as much as 75 per cent of the paid-up equity capital in Cals through GDR, but interestingly to note the shareholding pattern for the quarter ending Dec 2009 where GDR holding is reduced to only 61.16% from 83.98% in June 2009 quarter, whereas the total public share holding also increase from 15.91% to 38.73%. Number of shareholders also increased from 71,247 to 123,496 from june 2009 till now. However seeing the positive side is that Fund houses has made an entry.
   India Max Investment Fund Ltd: 2.40%
   Merrill Lynch Capital Markets Espana S.A. S.V.(spain): 1.27%.
   GDR holdings are continuously reducing from the june 2009 qtr this creates a doubt.
3. Whereas looking at the work related activities at haldia only land filling is in progress and dismantling of refinery has not yet been started, Company is waiting for the Financial Closure and onces it is done than they will start the further process.
4. The thinning refining margin may pose further problems for the project, which suffers from an estimated cost disadvantage of $2 a barrel on crude oil transportation from the proposed port at Dhamra in Orissa to Haldia in West Bengal.
5. Cals is having a Market cap around 450 crore & fundamentals are nil as on date.
   Whereas the revised circuit of 10% in Cals makes it a trader paradise.

Hence I would like mention that Cals is not meant for long-term investment and is not meant for the conservative investors as of now, only it is trader paradise. One should wait till company announce financial closure before making an investment in it. Seeing all the aspect of the company as of now Cals is a very risky affair, as I believe most of them are trapped in this share at higher price and there will be pressure on the stock on every rise until an unless financial closure is done.

- Hitesh, Equity Research Analyst, HBJ Capital Services Pvt. Ltd [Hitesh@hbjcapital.com]

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.