Confidence Petroleum India Ltd Management Discussions.

Industry Structure And Developments

LPG Industry

Liquefied Petroleum Gas or LPG is a group of flammable hydrocarbon gases that are liquefied through pressurization and commonly used as fuel. It is a natural element derived by combination with other hydrocarbon fuels, typically crude oil and natural gas. It is produced during natural gas processing and oil refining and liquefied through pressurization and stored in pressure vessels. While over 90% of demand for LPG comes from domestic consumers, the consistent hike in excise duty of automotive fuels such as diesel and petrol has made commercial LPG a favourable option for automotive segment as well. Petrol and diesel still continued to be under excise and benefit of GST is not available.

During lockdown mobility in various cities is highly restricted, but steep hike in the prices of petrol & diesel has given immense opportunities for Auto LPG with larger number of vehicles to shift for alternative fuel

i.e. Auto LPG to save money.

LPG has become the most popular domestic cooking fuel. The Governments initiatives to provide safe and clean fuel to every household has made India the second largest consumer of LPG fuel globally. On an average, India consumes 20 million tonnes per annum with an average growth in excess of 8% per annum. The prevailing Covid-19 pandemic had further pushed the volumes of residential LPG. Most urban population understood the benefits of composite cylinders, marketed under the brand name "GoGas Elite" and has given selling opportunities within residential segment.

LPG penetration in the rural areas also continued to be healthy with the introduction of various Government schemes. Under these schemes more than 90% of Indian households have access to LPG, up from 55% in 2016.

Outlook

LPG demand from the residential segment is expected to witness heavy growth momentum in the coming months, or until the pandemic is brought under control. As per Oil Ministry projections, LPG consumption is expected to grow to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040. (Source: Economic Times)

Threats

The major threat to LPG industry is City Gas Distribution network and Electric Vehicles (EV). The company, however dont foresee any major threat in coming 7 to 10 years as both City Distribution network and EV require huge investment in infrastructure so also lots of challenges are involved in the success of PNG, CNG and EV looking to the paying capacity and geographical bottlenecks.

Opportunity

LPG prices have sharply declined as compared to its highs in 2017-18. As a result, LPG has become an attractive and feasible fuel in comparison to other fuels like CNG. The decline in the prices of LPG is the result of fall in the prices of two major components of LPG i.e. Propane and Butane.

Increased monitoring and environmental audits, strict pollution norms are forcing many industries to shift from Oil and coal to alternative fuel-LPG.

LPG is clean and cheap fuel for automotive segment LPG is third most commonly used automotive fuel following petrol and diesel. It fuels more than 26 million vehicles across 70 countries of the world. The economic viability and environmental friendliness of LPG paved way for use of LPG, the Green & clean fuel as automotive fuel in India as well. The use of auto LPG by automotive sector in India commenced in the year 2000. Today, there are over 1,800 Auto LPG Dispensing Stations (ALDS) set-up across India. State Governments of Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Rajasthan and West Bengal have made use of LPG mandatory by auto rickshaws raising the demand of LPG by 45%. (Source: Indian Auto LPG Coalition).

RISKS. THREATS AND CONCERNS

The Company focuses on managing capital judiciously to ensure that the debt equity ratio remains comfortable and the Company is not financially stressed under any circumstances. The company follows appropriate Risk Management Policy mechanism commensurate with its size and business operations. Stringent controls on project costs are exercised so also strictly monitor project cost overruns, if any.

The Company has devised a Risk Management Policy and the management is coherently working to adhering to it to achieve sustainable growth and mitigate risks and threats.

Companys business is primarily regulated and monitored by Bureau of Indian Standards and Petroleum And Explosives Safety Organization (formerly Chief Controller of Explosives). The Company is required to adhere to their standards and norms which helps in mitigating the risks and threats.

The major threat to LPG industry is City Gas Distribution network and Electric Vehicles (EV). The company, however dont foresee any major threat in coming 7 to 10 years as both City Distribution network and EV require huge investment in infrastructure so also lots of challenges are involved in the success of PNG, CNG and EV looking to the paying capacity and geographical bottlenecks. Requirement of huge Capex for both City Gas Distribution network and Electric Vehicles and foreseeing the Indian geographic condition comprising most of the rural areas, it is not practically possible to establish the same.

All the properties and assets belonging to the Company have been adequately insured.

SEGMENT WISE REVIEW

1. AUTO LPG SEGMENT

With in-depth knowledge and thoughts understanding CPIL has successfully emerged as the largest and fastest growing player in ALDS segment in the private sector under the brand name ,GOGAS. CPILS approach to ALDS made it a game changer. The company has been licensed by Petroleun And Safety Organization (Formerly Chief Controller Of Explosives) to undertake the business of LPG purchase. The Company has its Auto LPG Dispensing Stations are located in different States of the country viz. Karnataka, Tamil Nadu, Telengana, Andhra Pradesh, Maharastra, Rajhsthan Madaya Pardesh and West Bengal.

Undoubtedly, the companys business under this segment is affected due to Covid pandemic, still we for see that in the coming period the prevailing scenario will change and the public transport shall ply as eariler improving the sales under this segment. If we campare the prices of Auto LPG with other fules, the price of LPG in international market has come down drastically, which made Auto LPG the most cheaper& feasible fuel for automobiles and industries. Further no other fuel can compete with LPG as less Capex is required for setting-up

infrastrue as distribution of Auto LPG is through containers and does not involve distribution pipelines channels for to the end user.

During the Current financial year Company was able to achieve a turnover of 119.81 million ltrs up from 90.80 Ltrs archived in FY 2018-19 i.e, a jump in quantity of arround 32.30 %. This robust performance [of only 11 months in current year (one months lost in pandemic) ] may be attributed to effective management by company of its various resources and in particular marketing initiatives taken for increase in turnover. Despite tremendus rise in quantity top line couldnt increase as compared to quantity as prices of LPG fell by nearly 11%. Though in current year in times PANDEMIC it has been diffcult for most of us to sustain including company. The Company in ensuing has been able to achieve 60 % of its existing turnover in this segement and is further expecting to achieve arround 75 % of turnover that it has achieved in FY 2019-20. However since future of pandmic is still uncertain we can only make estimates.

2. LPG RETAIL SEGMENT/PACKED LPG SEGEMENT-

In this segment Company undertake retail marketing of Packed LPG Cylinders under the brand name GoGas andGoGas elite. It caters huge demnad of non-subsidised segment, Hotels / restaurants / cafes (HORECA) and other industries. It is available in cylinders of different sizes ranging from 12kg 15kg, 17kg, 21kg and 33 kg. The Company is introducing 450 kg LOT cylinders for industrial and commericial applications. Certainly, Covid pandemic had impact on sales in this

segment also, but with the start of Unlock phase the take away facility for HORECA is already permitted by the Government as a result the sales of this segment is restoring and Comany expect better sales once the Covid pandemic is over, as it is focusing on marketing and capuring new market for this segment as well.

During the Current financial year Company was able to achieve a turnover of 85,152 Metric tonnes up from 50150 Mts in FY 2018-19 ie., a jump in quantity of arround 69.79 %. This top class performance [of only 11 months in current year (one months lost in pandemic) ] is due to wider reach by functional and effective dealer and distributer network base set up by company. The company has through various initiates and schemes depending on nature and size of market achived this performace. Despite tremendus rise in quantity toplinecoudlnot increase as compared to quantities jump as prices of LPG fell by nearly 20%. In current of PANDEMIC it has been difficult for most of us to survive the company has preformed well. During the ensuing year the company has been able to achieve 60% of its existing turnover in this segement and is further expecting to achieve arround 75 % of turnver achived in FY 2019-20. Flowever since future of pandmic is still not clear we can only make estimates.

3. BOTTLING DIVISION

The company is the largest LPG bottler in the private sector having PAN India presence. Company is engaged in bottling for major oil giants like BPCL HPCL Reliance so also undertake bottling for its own brand GoGas (LPG RETAIL SEGMENT). In coming days company shall focus on bottling of its own brand GoGas as the sales in retail segment is expected to grow. Simultaneously, company will also uder take bottling for various oil majors i.e BPCL, HPCL, RELIANCE. As all the bottling plants of the company are stategically located, will help company save cost on logistics so also store the stock at various locations for distribution. Company is working on hub and spoke model. With the help of bottling plants company provide uninterrupted and timely service to its own retail segment and oil majors.

During the Current financial year Company was able to achieve a turnover of Rs. 29.54 Crs a drop from 39.22 Crs in FY 2018-19 ie., a slide in quantity of around 25%. This slide in performance [of only 11 months in current year (one months lost in pandemic) ] is due to completion of various tenders and delay in receiving extensions / re-orderd. However in current year we are expecting good results in this segment.

4. CYLINDER DIVISION

CPIL is one of the largest private sector player in LPG this industry with its strategically located plants to serve its customers. First mover advantage and strong track record have resulted in outstanding customer base and storng brand image. The organisation is well equipped with capabilities to provide a complete range of LPG cylinders primarly to PSU oil majors viz. BPCL,HPCL,IOCL and secondly to other private players like Reliance. With PAN India presence the division enjoys logistic advantages. Because of the Covid pandemic the PSU Oil giants are focusing on service to its existing customers rather than foucing on new customers base. Once the prevailing Covid issue is resolved they will focus on new customer base through different schemes like Ujawalla, new connection schemes, which will help company get new oders for LPG cylinders. The company foresees huge oders from PSU Oil majors once the Covid pandemic is over.

During the Current financial year Company was able to achieve a turnover of 17.23 Lacs Cylinders from 22 Lacs Cylinders in FY 2018-19 ie., a slide in quantity of around 22.85%. This slide in performance [of only 11 months in current year (one months lost in pandemic) ] may be attributed to delay in receiving orders from PSU Oil Majors which are its principal source of revenue.. Though in current year in times PANDEMIC it has been difficult for most of us to sustain including company. However during the ensuing year the company has been able to achieve 20 % of its existing turnover in this segment and is further expecting to achieve around 50 % of turnover achieved in FY 2019-20. However since future of PANDEMIC is still not clear we can only make estimates.

5. CORPORATE SOCIAL RESPONSIBILITY

At Confidence Petroleum, we firmly believe in fulfilling our social responsibility towards the society. This year during Covid-19 pandemic period the company undertook the task of sanitizing each and every auto which visited its Auto LPG Dispensing Stations so also sanitized each and every cylinder before distribution to the end user and distributed

Masks and sanitizers as a part our drive towards nation building and health care. The company has been extremely concern over connecting to nations drive towards building literacy and quality education and for

this it has collaborated with educational institutes engaged in such activity. Further Company has also done plantation activity in various bottling plants / Pumps of the company for better environment.

6. INTERNAL CONTROL SYSTEMS

The Company has adequate internal control systems commensurate with the size and nature of its business. The system has been designed to ensure acquisition of Company assets in an economical manner and its safeguard to ensure their protection against any damage or destruction. The internal auditors of the Company regularly carry out review of the internal control system to detect deviations, if any. The report of the internal auditors is submitted to the management on a monthly basis, which help in prevention and detection of fraud so also report discrepancies, if any, in the day-today activities of the Company. Further, the internal control systems are periodically reviewed by the Audit Committee and are updated with the requirements of the organization.

7. HUMAN RESOURCE MANAGEMENT

The Companys management has adopted a professional approach for managing workforce of the company. The company inducted various professionals from the industry at senior as well as mismanagement level to prepare next level of growth. The companys second line is reasonably experienced. Key managerial personnel possesses several years of experience in their respective areas. The Management is supported by a strong team of professionals for growth of businesses.