This Smallcap Stock Could Profit from India's EV, Transformer, and Data Centre Gold Rush

Editor's note: A couple of weeks ago, we wrote to you about Savita Oil Technologies.

The company came under our lens after India's largest mutual fund took a big bet on the petroleum player by buying nearly 3% stake.

Adding to the positive sentiment, Savita Oil yesterday achieved a remarkable feat, becoming the first player in the industry to achieve something unique.

Shares of the company hit an all-time high after it became the first Indian lubricant company to manufacture Ester molecule. This molecule is used in biodegradable applications and also acts as a cooling agent in two- and three-wheeler electric vehicles (EVs).

The company has been testing Ester since 2015 and its plant was successfully commercialised in August 2023.

Mind you, this is big news... something that could possibly force analysts to re-rate the company as the EV megatrend has various applications and Savita Oil just became a part of it.

What's more, the company is also looking at the possibility of using the molecule for immersion cooling of data centres.

This is once again another big opportunity. Immersion cooling for cooling data centres is an underrated theme... something that's not caught the eye of investors, but it may soon become mainstream. Projections suggest the market is currently worth US$400 million and is expected to surge to US$2 billion by 2031.

That's a 5x opportunity!

Continue reading...

India's Largest Mutual Fund is Loading Up on this Smallcap Multibagger Stock

Share price of Savita Oil Technologies, a smallcap petroleum player, surged over 10% earlier this week after India's largest mutual fund bought a HUGE stake in the company.

On Tuesday, it was reported that SBI Mutual Fund (MF) bought nearly 3% stake in the specialty petroleum company via a block deal on 22 March 2024.

Data showed that SBI MF bought 2.07 million shares at Rs 408 apiece from its promoter entity Mehra Syndicate.

Before this transaction, the promoters of Savita Oil Technologies held a 71.92% stake in the company.

Note that another prominent mutual fund - HDFC Mutual Fund - also holds 7.4% stake in the company. In fact, prior to SBI MF's transaction, HDFC MF was the sole entity holding a 7.4% stake in the company.

SBI MF fund held Rs 6,252 billion (bn) in equities as of February 2024.

The top equity holdings of the fund include HDFC Bank, ICICI Bank, and Reliance Industries.

While we do not know the exact reasons why SBI MF decided to buy Savita Oil, there are some explanations.

Strong Q3 Numbers

For the quarter ended December 2023, Savita Oil posted good growth across segments driven by an improved product mix.

The company's total revenue saw a 7% growth while profit for the quarter came in at Rs 674 million (m) as against Rs 287 m posted in the year ago period.

Despite headwinds, the company reported an improved performance, owing to a price increase on select finished goods that was implemented in the previous quarter amid the rising crude price trend.

Even if we look at its historical financial performance, the company has posted good growth owing to steady demand of its products in user industries such as power distribution, cosmetics, automobiles, etc.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	22,625	20,462	19,123	29,382	36,304
Growth (%)	27%	-10%	-7%	54%	24%
Operating Profit	2,152	1,670	3,322	3,890	3,588
OPM (%)	10%	8%	17%	13%	10%
Net Profit	1,143	956	2,240	2,605	2,257
Net Margin (%)	5%	5%	12%	9%	6%
ROE (%)	14.3	11.1	22.9	22.2	16.7
ROCE (%)	23.9	16.8	31.8	31.3	25
Dividend (Rs)	0.5	4	3	5	4
Debt to Equity (x)	0	0	0	0	0

Data Source: Ace Equity

New Product Launches

In its investor presentation, the company highlighted that it has plans to launch various high-performance fluids in the coming quarters.

The company already has several SKUs spanning across product categories.

Savita Oil's subsidiary Savita Greentec has also commenced construction of Greenfield Projects in plastic recycling in Q4.

What Next?

While the company's market share in the lubricating oil segment is under pressure for some time, its market share in the transformer oil segment gives it a clear advantage to do well as India's power sector grows.

The company has an established market position with one-third market share in the domestic transformer oil and white oil segments.

As we've mentioned in one of our reports, the transformer theme is picking up pace which bodes even better for companies like Savita Oil Technologies.

The company stands out because of its diversified product & client portfolio, focus on product development, quality consciousness, and its strong financial position.

Over the years, all this has helped the company maintain its relationship with clients and hold its position as the co-market leader for transformer oils.

However, one must remember that Savita Oil is in the business of petroleum products... which is exactly why the company's fortunes are intricately linked to crude oil prices.

For instance, a rise in crude oil prices helped the company clock good performance in FY17. The business did well, and the stock price followed.

Will we see a repeat of the same in 2024?

Only time will tell...

How Savita Oil Technologies Share Price has Performed Recently

In the past 5 days, Savita Oil share price has surged over 15%.

In 2024 so far, shares of the company are up 32%.

Savita Oil has a 52-week high of Rs 484 touched on 26 February 2024 and a 52-week low of Rs 232.5 touched on 29 March 2023.

In the past one year, shares of the company have rallied 94%, and looks set to touch the 100% mark and claiming the 'multibagger' tag.

Here's a table comparing Savita Oil with its peers -

Comparative Analysis

Company	Savita Oil	Gandhar Oil	Gulf Oil	Panama Petro	Tide Water
ROE (%)	16.7	33.7	21.1	27.1	15.4
ROCE (%)	24.9	40.6	24.1	34.9	19.8
Latest EPS (Rs)	29.9	19.4	57.7	30.6	77.1
TTM PE (x)	15.4	10.3	16.3	10.8	18.1
TTM Price to book (x)	2.1	1.4	3.6	1.9	2.9
Dividend yield (%)	0.9	0.3	2.7	2.4	3.1
Industry PE	17.3
Industry PB	3.9

Data Source: Ace Equity, Equitymaster

About Savita Oil

Savita Oil started its operation in 1961 with the name Savita Chemicals Ltd, manufacturing liquid paraffin as an import substitute.

Since then, it has expanded its product portfolio and is now a leading manufacturer of different petroleum products.

Today, Savita Oil Technologies is a specialty petroleum products company engaged in manufacturing transformer oils, white oils etc.

To know more, check out its financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...