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Olympic Oil


Olympic Oil was a dormant company until the last quarter when it showed a spike in operating activity.  The company is currently promoted by a Mr Sunil Varma and a Mr Uday Desai from Kanpur holding a combined 31% equity stake (after an open offer in 2010).  The public still holds 69% equity in this company.

A perusal of its public filings reveals changes in its memorandum of association to include trading activity for all kinds of commodities (agri-commodities, extracts, oils etc.).  Further, there appears to be substantial additional financing in the past few months to enable this business.

Latest balance sheet is unavailable – therefore, the amount of external debt to equity capital is not readily ascertainable.  The company appears to have generated 48 lacs of profits on substantial revenues of 38 crores in the last 12 months compared to nothing in the last year.  The profit margins are marginal, as expected in a trading business, but the interest cover stands at just over 3 times indicating reasonable safety.  Nevertheless, the high cost base could result in substantial losses if revenues were to decline even marginally.

The business is subject to the risks associated with a trading organisation – primarily that it lacks ownership of assets within the value-chain.  Of course this provides it with flexibility should the economics worsen but even in this business of trading commodities, the barriers to entry are very low resulting in severe competition that can easily render this venture unviable.  Further, the company doesn’t have any recent experience in this business and this is compounded by the scale with which the management propose to pursue it.

Management has allotted substantial equity and warrants to promoters to finance the new venture – which approximates to a maximum value of over 1 crore.  Only time will tell whether this is only a legitimate allotment to finance a new venture or whether this is indicative of further expansion at the expense of the minority shareholders.
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