Cals Refineries - Small Cap Penny Stock - What to do?

Recently, one of Indian Stocks News reader, Varun Aggarwal, commented on falling stock price of Cals refineries. Here are my thoughts and answer to him.

Dear Sir,

Can you please suggest what the future hold for this stock. As per your recommendation I have entered in the stock. The article above and research done by you is fantastic.

I am little skeptical on the stock price. As everyday it is making new lows. I am still holding it. I have 1.5L shares@3.4. So please suggest me what should I do and what should be my return expectation horizon.

Varun Aggarwal

Hi Varun,

I understand your concerns for this stock. Have a look at the broader markets and you can see the correction going on in almost every stock. Globally, the stock markets allover world are correcting on European financial crisis. So it is understandable the correction in small stocks.

If you look at the fundamentals of Cals refineries, it is still a 238 Crores company at Rs. 0.30 stock price as on date. It is not any 5 crore or 10 crore market cap small company. It shows the book value of the stock to be Rs. 0.99

By value investing standards, price to book value ratio is at 1/3rd.

Company is assembling a huge petrol refinery as discussed in earlier articles but it will go on production only in 2012 as per declaration from management. So do not expect anything before that. It is a long term play and you have to play it for at least 3 years. Once the refinery starts operations and numbers start coming in, you would see the returns, until then its only a wait and watch game.

I would like to mention recent example of another refinery stock. Essar Oil. My father had bought essar oil IPO when it was launched some 12 - 15 years back. The refinery got delayed by several years and took somewhere around 10 - 12 years to go operational. He use to always tell me "I don't know when would I get my money back." I had seen the stock trading at 7 and 8 rupees 5-6 years back. Slowly, the refinery started making progress towards completion. After completion, it almost made an high of RS. 333 in years time. So it used to trade at Rs. 4 in 2004. It is trading at Rs. 122 as on date and made an high of Rs. 333 in favorable economic conditions. Someone who had played it long, would really have made money in it. (P.S. My father sold off his shares early after getting some profits on his initial investment in Essar oil. But he did not had left any faith in company by that time due to several delays and he missed good opportunity of making excellent investment returns.)

I think Cals refineries could be similar such opportunity as long term investment.

If you look at Cals Refineries Latest News Update, West Bengal government has extended the guarantee for loan they have taken. Why would a government would guarantee for a project if it would have been not feasible?

Read my last paragraph in Cals Refineries stock analysis article. it says "I am not recommending you to buy stocks to invest in CALS refineries but I am asking you to take a bet in this counter. If it goes well, you would gain a lot, if you loose, never mind."

I am betting on it for long term and believe me, I have more "Stock" of Cals refineries stocks than yours! :) And I am adding various stocks at every fall including cals.

Let's see where we go!!!

Indian Stocks News

Earlier articles on Cals Refineries:
CALS Refineries - Small Cap Stock & Penny Stock - Analysis
Cals Refineries Latest News Update