Q&A Confidence Petroleum: Result Analysis March 2010

Confidence Petroleum has reported March 2010 Quaterly and yearly numbers and first look gives us a great picture.(These are consolidated numbers)

Quaterly sales up 128.14% , Annual Sales up 125.45%
Quaterly PBDIT up 120.68%, Annual PBDIT up 98.69%
Quaterly Taxes paid up 1751.84%, Annual Taxes paid up 272.78%

The numbers look great and it certainly looks good but we really need to look at the numbers from another angle.
Expenditure as a percentage of sales increased from 89.87% to 90.27% on a quaterly basis
Expenditure as a percentage of sales increased from 87.07% to 88.60% on a yearly basis

PBDIT as a percentage of sales decreased from 10.13% to 9.80% on a quaterly basis
PBDIT as a percentage of sales decreased from 12.93% to 11.40% on a yearly basis

Interest payment as a percentage of sales increased from 1.80% to 1.97% on a quaterly basis
Interest payment as a percentage of sales increased from 1.26% to 1.76% on a yearly basis


Profit Before tax as a percentage of sales decreased from 6.18% to 5.84% on a quaterly basis
Profit Before tax as a percentage of sales decreased from 10.00% to 7.07% on a yearly basis


Taxes as a percentage of sales increased from 0.35% to 2.81% on a quaterly basis
Taxes as a percentage of sales increased from 1.02% to 1.69% on a yearly basis

Net profit after minority interest decreased from 5.84% to 2.60% on a quaterly basis
Net profit after minority interest decreased from 8.98% to 5.23% on a yearly basis

As you can see once we compare the profits with the sales for the same quarter/year we get a completely different picture.. confidence petroleum Net profit margin (after Minority interest) has dropped from 5.84% to 2.60% which means it is making less money for every additional sale this quarter as compared to last quarter. And the profit margin has dropped by 55.5% on a quarterly basis and dropped 41.79% on a yearly basis.. clearly this is not good news..

I would advise people to lighten their holdings if the stock appreciates with the results.
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Another point which I would like to bring to the notice of investors of confidence petroleum is the following balance sheet information published by the company for the year ending March 2010

1. Equity Capital has trippled from last year
2. Reserves have increased..  but when compared to equity capital reserves have dropped from 4.3 times equity to 2.97 times equity in 2010
3. Secured and unsecured loans have both more than doubled
4. Inventory and sundry debtors have also increased substancially.

Conclusion: Confidence is expanding .. trying to reach a critical mass.. and for that it needs Auto LPG dispensing stations. Bottling segment has better margins while LPG  segment has lower margins and is high volume low margin business. It will definitely take a few years for confidence to reach a firm/stable condition..
Right now the management does not have much room to make any mistakes..we can expect equity dilution as company will need equity to expand its footprint.. Would suggest selling and keeping the company under watch for the next few years before investing.