Oxygen stocks witnessing a strong rally?

As India is witnessing a strong wave of coronavirus pandemic, the demand for medical oxygen has been rising. The Centre, on April 18, banned the supply of oxygen for industrial purposes, except in nine specified industries and termed it an “essential public health commodity”.

The country has also ramped up the production of the gas from 19 April onwards, Indian Railways started transporting Liquid Medical Oxygen and Oxygen Cylinders across the country. Green corridors have been established to facilitate the fast movement of dedicated Oxygen Express trains.

With Indian COVID-19 patients struggling to find medical oxygen in the middle of a second deadly wave of coronavirus infections, shares in companies that produce the gas — or simply have it in their names are seeing a strong rally. Here, are some stocks that have witnessed a huge rally in the short run. However, at the same time from 19th March 2021 to 19th April 2021 Nifty50 plummeted 2.6%

_{Source: Ace Equity
*3 year CAGR return is before second wave of covid19 i.e. March 2018- to March 2021
*1-month return is during spike in Covid19 cases i.e. March 2021- April 2021}

Stocks that are not in the medical oxygen and equipment business but still have rallied are:

1. Bombay Oxygen:
Bombay Oxygen ended its gas operations in 2019 and is now a non-bank lender, according to its latest annual report. Formerly known as Bombay Oxygen Corp Ltd, it is now Bombay Oxygen Investments Ltd.

• The company has a Mcap of Rs 350.19cr.
• Company has a low return on equity of -2.52% for last 3 years.
• Compounded Sales for past 5years is -32%
• Company is almost debt free.

Ratios as on March 20 are as follows

• ROCE: -11%
• Debtors Days:71

2. Gagan Gases Ltd:
Gagan Gases Ltd is a distributor of fuel gas commonly known as LPG have also climbed 53.7 per cent in the past one month - despite not having any significant news whereas, before second wave of Covid19, the stock registered -10% CAGR.

• The company has a Mcap of Rs 4 cr.
• Company has a low return on equity of 8.57% for last 3 years.
• Compounded Sales and profit growth for past 5years was -4% and -15% respectively.

On the contrary, Stocks related to the medical oxygen and equipment business that have rallied are
 

3. National Oxygen:
National Oxygen Limited is an India-based company, which is engaged in manufacturing industrial gases, such as Oxygen and Nitrogen.

• The company has a Mcap of Rs 30cr.
• The company has delivered a poor sales growth of 9.32% over past five years.
• Compounded profit growth for past 5years was 13%

Ratios as on March 20 are as follows

• ROCE: 9.85%
• Debtors Days: 40

4. Bhagawati Oxygen:
Bhagawati Oxygen is engaged in the business of manufacturing and engineering company with core focus on industrial gas manufacturing, technology, system and equipments.

• The company has a Mcap of Rs 4 cr.
• The company has delivered a poor sales growth of -23.83% over past five years.
• Company has a low return on equity of -1.85% for last 3 years.
• Company has high debtors of 369.87 days as on March 20.

5. Linde India Ltd:
Linde India Limited, formerly BOC India Limited, is engaged in the gases business. The stock rallied 10.3% in the past one month whereas, before second wave of Covid19, the stock registered 55.3% CAGR.

• The company has a Mcap of Rs 15,943cr.
• The company has delivered a poor sales growth of -1.25% over past five years.
• Company has a low return on equity of 5.65% for last 3 years.
• Debtor days stands at 101.03 days as on March 20
• Company is almost debt free.
• Company has delivered good profit growth of 52.75% CAGR over last 5 years

6. Everest Kanto Cylinder Ltd:
Everest Kanto Cylinder is India’s largest player in high pressure gas cylinders with market share of around 50 per cent. The company has around 150-strong client base from diverse verticals including automobile OEMs/after-market, city gas distribution, industrials, cylinder cascades, medical sector, firefighting equipment and defence – including Tata Motors, Bajaj Auto, Hyundai, Toyota, BOC India, Praxair, Mahanagar Gas, Adani Gas.

Given the acute shortage of oxygen cylinders amid rising Covid-19 cases in India, the company is expected to see surge in demand in its medical equipment segment.

• The company has a Mcap of Rs 1,500cr.
• The company has delivered a poor sales growth of 10.00% over past five years.
• Company has a low return on equity of 5.76% for last 3 years.

Ratios as on March 20 are as follows

• ROCE: 7%
• Debtors Days: 57

Conclusion:
The rising demand for oxygen cylinders and medical equipment’s on account of the Covid19 pandemic resulted in huge demand for certain stocks. However, market experts are of the opinion that the rally to be short-lived as the rally is more influenced by short-term liquidity than backed by solid fundamentals. Therefore, we recommend investors to check the fundamentals of the company before taking any buy or sell decision in the stock market.

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Disclaimer: The above details is compiled from information available on public platforms. These are not buy or sell recommendations.