Ashish Chugh’s HIDDEN GEMS

……. in search of Market Beating Stocks

E-Mail ID - nexgenfin@yahoo.com

November 18, 2006

HIDDEN GEMS REPORT SENT TO PAID SUBSCRIBERS ON

OCTOBER 30, 2006

Confidence Petrol eum India Ltd.

CMP – Rs. 2.00 BSE Code –526829

(Face Value – Re. 1)

First of all, some words of caution –

Ø one, the stock of Confidence Petroleum currently trades in the ‘Z’

group on BSE and thus carries high risk;
Ø two it is a penny stock which generally carry high risk;
Ø and third, as of now the company has very little revenues and
the recommendation is being made on the premise that the
company will be a much bigger entity in terms of its Revenues
and profits, by virtue of its merger with Confidence Cylinders
and Petrochem Pvt. Ltd., a private company of the promoters;
recent business received from various oil majors and anticipated
business in the future.
THE STOCK IS THEREFORE RECOMMENDED FOR INVESTORS
WITH AN APPETITE FOR HIGH RISK.

Background

Confidence Petroleum India Ltd. (Confidence Petroleum) was earlier

called Devarsa Gas Chem Ltd.. The company was incorporated in
Jul.'94 as a private limited company, and converted into a limited
company in Sep.'94. The company was promoted by Ashok Jain and
Narendra Mohnot.

The company came out with a public issue in Feb.'95 to set up two
LPG bottling plants near Pali and Udaipur in Rajasthan.

The company saw a change in management in 2003-04 when it was

taken over by Nagpur based Khara group, a large player in the LPG
business. Khara Group has interests in the manufacture of cylinders
and bottling of LPG cylinders.

Business

After the takeover of the company from its originals promoters, the
Khara group is trying to infuse new life into the company by taking
various steps – these include aggressively adding new businesses by
setting up more bottling plants and amalgamation of a private
company of the promoters with Confidence Petroleum.

Amalgamation of Confidence Cylinders and Petrochem Pvt. Ltd. with

the company

The company is amalgamating its private company, Confidence

Cylinders and Petrochem Pvt. Ltd. (Confidence Cylinders) . After the
amalgamation, Equity Capital of the company will increase to Rs.15.75
crores from Rs.5.25 crores currently and post merger equity stake of
the promoters will go up to 75%. As per the Annual report of the
company for FY 04-05, Confidence Cylinders and Petrochem Pvt. Ltd.
is having Asia's single largest cylinder manufacturing Plant near
Mumbai and five LPG bottling Plants. These plants cater to the
demands of public sector oil majors namely BPCL, HPCL & IOCL. The
financials of Confidence Cylinders are not available in public domain,
however the very fact that the company owns Asia’s single largest
cylinders manufacturing facility, it should have a decent topline.

New Business Initiatives

In a communication to BSE, the company had informed that M/s.

Confidence Cylinders & Petrochem (P) Ltd received orders worth Rs 45
crores from Indian Oil Corporation Ltd (IOCL) and Bharat Petroleum
Corporation Ltd (BPCL) for supply of 14.2 Kg. LPG Cylinders.

Also, HPCL has conferred on the Company an order for providing LPG
Cylinder bottling assistance in Himachal State for which the Company
is putting up a new bottling plant at Baddi, Himachal Pradesh.

The company has also informed that it is putting up bottling plants for
providing LPG bottling assistance to HPCL at Coimbatore, Roorkee
and Chindwara. (MP)

At present the company has 42 bottling plants spread across various

locations in the country and has plans to aggressively establish more
bottling plants.

Other Business Opportunities

The management of Khara group claim to be one of the largest players

in manufacture and bottling of LPG cylinders in the country. In view
of the leadership position of the group in the business – the company
will have a great edge whenever sale of LPG is thrown open to the
private players. Currently, for private players it would be an unviable
business in view of subsidies provided by the government on sale of
LPG for domestic use. However, in the current economic scenario
where we are witnessing a gradual removal of subsidies and
everything becoming market determined, integrated players like
Confidence Petroleum would be thrown open big business opportunity
in the event of removal of subsidy on LPG.
Also, given the increased demand for CNG cylinders in India &
overseas, the possibility of the company’s entry into the high margin
business of manufacture of CNG cylinders cannot be totally ruled out.

Conclusion

Confidence Petroleum, by virtue of its merger with the group company

is expected to report substantial Topline and bottomline for the year
ended March 06. Also, in view of the new business added in the
current year, we may see a substantial growth in its topline and
bottomline in the years to come.

The group has several other companies involved in the manufacture of

LPG cylinders and in bottling operations and in future, consolidation
of these businesses with Confidence Petroleum cannot be totally ruled
out. Incase of that happening, it would be a big trigger for upward
rerating of the stock.

Khara group has a past track record of taking over sick units, and
turning them around into profitable units. The group had taken over
sick cylinder manufacturing units in Andhra Pradesh and
Maharashtra, a few years back and has managed to successfully turn
them around. We believe, the case of Confidence Petroleum will be no
different. However, in the absence of the latest balance sheet of
Confidence Petroleum and Confidence Cylinders, it is difficult to
comment on the Revenues and profitability of the merged entity and
hence the risk in buying at this juncture. However, given the
businesses added by the company in the recent past and orders
received, the company should report healthy Topline and bottomline in
the years to come.

The stock which was lackluster till about a month back has been
witnessing heightened activity of late, signifying interest of investors
in the company.
Investors with an appetite for HIGH RISK may choose to buy the stock
at the current levels and on declines.

Ashish Chugh is an equity analyst and investment consultant based at New

Delhi, INDIA. At the time of writing this article, he, his firm and dependent
family members have a position in the stock s mentioned above. The
author, his firm or any of his dependent family members may make purchases
or sale of the securities mentioned in the report while the report is in circulation.
The author invites readers to send him em Apcotex and welcomes comments,
feedback & queries at nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and the
information contained herein may not be deemed to be an investment
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investment needs of any specific person. The information contained
herein is not a complete analysis of every material fact representing any
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accuracy of its contents. Investors are advised to satisfy themselves
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