Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There could be lot of things which might have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

Savita Oil

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Business

Savita Oil Technologies Limited, established in 1961, is a specialty petroleum products company engaged in manufacturing Transformer Oils, White Oils etc.

The Co manufactures products like Transformer Oils, Liquid Paraffins, White Oils, Automotive and Industrial Lubricants, Coolants and Greases, among others. These products are essentially obtained through refining base oil, and topped with additives to derive the required characteristics. A wide range of lubricants, greases, and coolants of the Co are sold to retail customers under the brand SAVSOL

The Co has a market share of ~35% in the domestic transformer oil and white oil segments.

The Co’s manufacturing facilities are situated in the state of Maharashtra and at Silvassa in the UT of Dadra and Nagar Haveli and Daman and Diu with total refining capacities of 450,000 kilolitres per annum. Its windmills are located at 18 sites in the states of Maharashtra, Tamil Nadu, and Karnataka and have an installed capacity to produce 54.15 MW of wind-powered electricity

Company has 80 % domestic sales vs 20% exports

Revenue distribution 75% from petroleum and 25% from lubricating oils

Unit I – Navi Mumbai, Maharashtra
Unit II – Mahad, Maharashtra
Unit III – Kharadpada, Silvassa
Unit IV – Silli, Silvassa

• 41 Stock points,
• 20,000 Retailers
• 400 Distributors
• 1,500 Franchise Dealers

Products, Segments and Strengths

Two major segments : Petroleum Oils and Lubricating Oils

Petroleum oils : Transformer oils, White and Mineral oil, Speciality oil : ~75% sales as portion of total sales over last 2 years

1. Transformer oils : These oils are used as an insulating and cooling medium in distribution transformers, power transformers and instrumentation transformers
2. White oils :

• Offer wide range of highly refined specialty mineral oil based products under the “TECHNOL” and “SAVONOL” brand.
• They manufacture petroleum jellies like Ultima White, Snow White, Yellow Petroleum Jelly and other specific industrial grade petrolatum’s under the brand “Savogel”
• Key properties of this fluids are good lubricity, smoothness, softness and resistance to moisture in the formulations
• Specialized waxes and emulsions including paraffin wax emulsions, microcrystalline wax, Polyethylene wax, oxidized PE wax and a range of wax emulsions. Wax Emulsion protect coating and ink surfaces for diverse applications
• Cable filling and flooding compounds for copper cables as well as Optic Fiber Cables under “Savofil”, “Savoflod” and “Vitagel” brand names. This compound helps moisture tolerance, softness and stability at an extreme temperature

3.Formulated & Specialty Products

• The 5G Telecom spectrum auction held in 2022 and subsequent rollout of the network is expected to generate healthy demand for this product
• › Growing demand from end user market
• › Government Linked PLI Scheme
• Key Growth Drivers
• Optic Fibre Cables
• Textile & Leather
• Auto components
• Polymers
• Refrigeration Compressors
• Construction Compounds

Lubricating oils : Automotive and Industrial oils

Automotive oils

• The lubricant brand SAVSOL manufactures and markets high performance lubricants, fluids, coolants & greases and is amongst the fastest growing lubricant brand of India
• It has a comprehensive range of automotive lubricants meeting the growing demand for sustainable products in various categories, i.e., Passenger Car Oils, Motorcycle Oils, Commercial Vehicle Oils, and Other Specialty Products
• SAVSOL portfolio has products which successfully meets the latest & stringent BS VI emission norms for automobiles
• Savita Oil Technologies known for its high quality lubricant manufacturing with state-of-the-art plants and technology centre has been amongst preferred supplier to automotive OEMs for a wide range of lubricant applications
• Trusted partner for leading automotive OEMs. Some of our OEM associations are existing for over two decades
• A fully equipped technical and quality control lab ensures high quality standards

Industrial oils

• Savita Oil Technologies has been a trusted partner to Industrial OEMs for a wide range of lubricant application needs.
• › It has an elaborate product portfolio under Brand “SAVSOL” catering to various Industrial applications and provides
• excellent lubrication, performance and protection to different types of Machines and Industrial Equipment
• The exhaustive portfolio includes wide range of Hydraulic Oils, Turbine Oils, Thermic Fluids, Heavy Duty Industrial Gear
• Oils, Transmission Oils, Greases, Heat Treatment (Quenching Oils), Metal Working Oils and other Specialty Oils

Strengths

Multi-decade relationships with many of our OEM and B2B customers across all product lines

In-house technology and R&D is the backbone of our company and has manifested many high quality products across the product portfolio.

Focus on innovation

Focus on sustainable products development

Management has almost 3 decades of experience.

Company has ISO and other necessary certifications in its field of operations

Clients

Fundamental Ratios, Cash, Loans, EBITDA,PAT margin, Shareholding pattern

Consistent record of Dividends since listing in 1994
Healthy cash generation over the years
Debt free balance sheet
Consistent track of profitability despite market volatility
Longstanding relationships with customers and vendors

Consistent Tax records

Cash conversion cycle and working capital cycle is good.

Cash flows seems good

ROCE is reasonably above 20%

Shareholding pattern

Promoter has skin in game. SBI energy fund has entered recently

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Recent Developments

Key triggers

Transformer oils : Rising Investments over the next decade in transmission segment to support higher generation capacity and rural electrification
Rising demand for modernization of aging grid infrastructure coupled with large scale capacity addition will boost the market

White oils : The Indian personal care industry is witnessing a boom due to changing perceptions, growing awareness, and the rise of direct-to-consumer (D2C) companies making waves in the online retail space
Growing demand of cosmetic and pharma products from urban & rural India

Product Innovation

Company is focused on building an independent distribution network for our industrial lubricants and with this now in place , they want to rapidly scale up industrial lubricant volumes

Company has created a subsidiary and moving towards plastic recycling

Savita Greentec Limited (a subsidiary of Savita Oil Technologies Limited) is expected to commence construction of Greenfield Projects in plastic recycling in theQ4Fy24

SAVSOL Bio Boost, one of India’s most biodegradable engine oils is launched

Oct23 – successfully commissioned new Synthetic Ester manufacturing plant

Commissioned new Synthetic Ester manufacturing plant at Mahad, Maharashtra with a designed capacity of 5,000 metric tons of which current operational capacity would be ~3,000 metric tonnes per annum

The new synthetic ester manufacturing plant will provide a strategic advantage to Savita by making it the first company in the world to manufacture and market all three classes of Transformer Fluids vis. Mineral Oil Based, Natural Ester Based as well as Synthetic Ester Based Transformer Fluids. The applications of these Esters are very versatile, and we will be able to leverage our existing client base to cross-sell these products while tapping new clientele. With these plant-based esters, we will have a more sustainable and environment friendly product range in the premium and synthetic categories. We plan to launch a new range of EV Coolants and immersion Cooling Fluids based on Esters from this plant. One of our products has already been approved by a reputed OEM as an EV coolant. We are also undertaking trials with another potential customer for immersion cooling.

Environment friendly products

Company have evaluated the introduction of versatile ester-based compounds (esters) in product range to enhance our diversified offerings of environmentally friendly products.
Group V Base Oils comprising Polyol, Phosphate and other Esters are the most superior performing fluids that exceed the performance of synthetic base oils on parameters of lubrication, thermal stability, oxidative stability, compatibility with most metals and sealants and biodegradable with low toxicity

Modernisation of Existing Transformers: Majority of India’s transformers and power infrastructure components are ageing and need replacement or modernisation. This drives the demand for newer, more efficient, and technologically advanced transformers.

Implementation of Smart Grid: The development of smart grids requires intelligent transformers that can handle bidirectional power flow, manage voltage fluctuations, and support grid automation. This opens avenues for technologically advanced transformers. Moreover, the demand for energy-efficient transformers that reduce transmission losses and improve overall grid efficiency is steadily expanding in India.
The transformer fluids market in India holds promising opportunities as the country strives to meet its increasing
power demands while addressing environmental concerns and adopting technological advancements.

Company is seeing a substantial increase in customer order books within the Power and Distribution Transformer sector, with their production capacity reserved for the coming 12-16 months. This heightened demand extends beyond India; the export segment to North America and other regions is also demonstrating promising growth potential. This is attributed to India’s competitive manufacturing ecosystem for transformers, well-suited to meet global requirements.

Alternative Fluids
Bio-Based – Your Company also produces bioTransol, a natural ester-based insulating fluid designed for transformers. This groundbreaking product was originally launched by Savita Polymers Limited (earlier a wholly-owned subsidiary of your Company which is in the process of being merged into your Company), in 2015. Remarkably, it marked the first instance of an Indian company introducing such a product to the market.
With an extensive reach, bioTransol has been applied to over 300 projects, solidifying its impact. This product promotes environmental consciousness with a high proportion of biodegradability. Moreover, its safety and efficiency surpass conventional options across various equipment applications.
Your Company is actively engaged in collaborating with major national and state utility boards, as well as Original
Equipment Manufacturers (OEM) clients, to showcase the product’s merits. Not only does bioTransol offer a more
effective solution within its grade, but it also embodies environmental sustainability. In an environment where global OEMs are compelled to reduce their carbon footprint, the appeal of such products is further enhanced.
Company is confident that the adoption of Natural Ester-Based Transformer Fluids will witness substantial growth, becoming an integral component of OEM consumption.

Synthetic Based – Your Company is poised to introduce Transol Synth100, a cutting-edge synthetic ester-based
insulation fluid. This fluid represents a significant advancement in transformer fluid technology, surpassing
existing solutions across a range of parameters.
Transol Synth100 stands as the most robust transformer fluid to date. As this product comes at a higher cost compared to mineral or natural esters, Transol Synth100 finds application in highly sensitive applications such as Locomotives (Metro and Rail), Mining, and Floating Solar projects. The overall lifecycle cost of this fluid effectively offsets its initial investment which will serve as a key driving force in the gradual transition from mineral to ester fluids within the ecosystem. With the launch of Transol Synth100 in the coming financial year, your Company will achieve a remarkable milestone, emerging as the sole manufacturer of the entire spectrum of transformer fluids – Mineral, Natural, and Synthetic.

Capex 

Capacity Expansion Increasing capacity through continued investments for efficient leveraging of comprehensive and balanced product portfolio

Valuations

Reasonable valuations with PE <20. If the company shows growth in coming years as per their talk and opportunity size, this price looks undervalued

Risks

During the quarter under review, two critical components – Base Oils and the Exchange Rate have witnessed major volatility and both of these impacted us adversely. Base Oils Prices have fallen about 25% since June 2022 and the Indian rupee also depreciated significantly in the Quarter ending December, 2022. This resulted in
inventory and foreign exchange losses which have impacted our margins

Any policy changes can impact the company hard

Technicals on 28Apr24

Stock has given a breakout and volumes are supporting upmove as well

Conclusion

If you have understood the triggers and industries it cater to + RISKS which can materialize and have patience then think of buying this company in every dip, market offers, else Ignore the stock

Stock might be volatile in short term and give a chance to buy around 500-650 range for long term investment purpose

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Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There could be lot of things which might have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

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