Introduction: Southern Online Bio Technologies Ltd. (SOBT), formerly Southern Online Services Ltd. is an eco-friendly, greenfield company. It was the first private Internet Service Provider to provide internet connectivity across the length and breadth of Andhra Pradesh and has now setup a bio-diesel plant - the first of its kind in India.SOBT's successful track record of over six years includes providing broadband internet services to up-market corporate clients besides providing dial-up internet services to individual customers.It has now moved into the greenfield area of production of bio-diesel, the ideal alternative to conventional diesel. The bio-diesel unit has many outstanding features some of which include wasteland development by cultivating Pongamia/Jatropha as basic raw material, involving tribals, farmers and rural folk, generation of rural employment, conservation of precious foreign exchange and cutting down the threats of pollution.
Shareholding Pattern: The promoters hold 21.08% in the company while the public holding is 78.92%. Among the public holding various corporate bodies hold 14.76% while BLB Ltd. holds 3.07% and Mangal Keshav Securities Ltd. holds 2%.
Financials: For the Q3FY07, the company’s net sales increased from Rs.1.45 cr. to Rs.1.63 cr. while the net profit dipped to Rs.8.3 lakh from Rs.13 lakh. The operating profit remained flat at around Rs.34 lakh against Rs.38.3 lakh in the same previous period. The fall in net profit is due to the greater spending by the company and also due to higher depreciation. But its Q4FY07 quarter results are expected to be good due to better execution of orders and also due to some easing of margins.The company is doing well in the ISP space. It is into a number of fields like dial-up connection, leased lines, wireless, cable service, web hosting and VOIP. Last fiscal, its ISP division had sales of Rs.5.2 cr., which is expected to go upto around Rs.6.5-7 cr. in FY07 and not less than Rs.8-9 cr. in the current year 2007-08. The company is planning a ‘one stop solution’ and revamping the content management division, which has a good presence in the market.
Operations: But the main focus of this company has shifted to the growing field of bio-diesel. This segment is attracting world attention due to high price of conventional fossil fuels and due to the continuing unrest in the Middle East and Nigeria, the principal producers of crude oil.The company has set up a huge refinery of capacity of 12, 500 litres per annum at Samsthan Narayanpur in Nalgonda District of Andhra Pradesh, which uses various kinds of non-edible vegetable oils like Jatropha oil, Pongamia oil, Rape seed oil, Tallow, Fish Oil, etc., which are locally available. Several prospective buyers from local and as well as global markets have already visited its bio-diesel factory to check the processes, raw material, storage facilities etc. and have now expressed their willingness to enter into purchase agreements. The company is in the process of finalizing the terms & conditions such as the selling price, quantity, etc. to enter into long-term agreements. The significant point is that the company has made local tribals as partners so that the there is no shortage of oils for running the plant. The company hopes to enjoy a margin of at least Rs.2.5 to Rs.3.5 per litre of oil produced, which is very good considering that12conventional petroleum marketing companies are making losses due to government’s directive. In the recent budget, the Finance Minister has also given some fiscal incentives for the bio-diesel units.Last year, SOBT conducted trial runs on APSRTC (Andhra Pradesh State Road Transport Corporation) Buses in coordination with APPCB (Andhra Pradesh Pollution Control Board) from 5 June 2005 to 31 March 2006. After the trial runs as per the report of the APPCB, bio-diesel registered excellent reduction in pollution. With the successful completion of these trial runs, it ran a few more APSRTC city buses from 5 June 2006 to 5 September 2006 with bio-diesels of various blends in coordination with APSRTC to observe the mileage of the vehicles on different blends. During these trials, the bio-diesel produced by the company registered higher mileage as compared to regular diesel. Based on the successful results in terms of reduction in pollution and higher mileage, the company is expected to sign a long-term purchase agreement from APSRTC, which will absorb at least 85% of the its available capacity. The company is also exploring possibilities of exporting its products to the lucrative European and North American markets on an ex-factory basis, which will do away the problems of transportation and other related costs. A number of overseas companies have already expressed interest to procure bio-diesel from the company. Similarly, Hindustan Coca-Cola Beverages Pvt. Ltd., Hyderabad, and ABT Parcel Services, one of the biggest transport agencies in South India, have tested its product and have expressed their satisfaction on its performance. The company also expects to get orders from the Indian Railways, which is also satisfied with its products.
Manufacturing:The company setup its bio-diesel plant in collaboration with LurgiLift Sciences, Germany, and its Engineering partner, Chemical Construction International Pvt. Ltd., New Delhi. The company has recently replaced a part of the plant that was causing problems. The team of engineers and technicians, who flew from overseas, has checked the overall performance of the plant expressed its satisfaction. They are expected to come from abroad within a couple of weeks to give their final nod for the commercial production. Meanwhile, BBC has produced a documentary on the company for being the first of its kind in India.Once commercial production starts, there should be no looking back for the company. It is also trying to raise Rs.70 cr. for further expansion and setting up of second bio-diesel plant in Vishakapatnam (Vizag) and is thinking of going in for an issue of securities convertible into equity shares/ GDRs/ FCCBs/ Convertible Bonds to QIBs or Overseas Investors and raise funds through Rights and/or Public Issue. The company hopes to start building the second plant by the end of this year, which is expected to be completed within one year.
Conclusion: The company’s share price which is presently languishing at around Rs.11/12 range could see a quantum jump once commercial production begins within a couple of weeks. Thus, looking from all angles, this scrip appears highly undervalued and could touch Rs.50 plus in 8-18 months time frame.