IDFC Securities - Chennai Petroleum (CHENNPETRO) Chennai Petroleums Q3FY18 results (Outperformer) - Inventory gains drive another strong qtr

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IDFC Securities

Chennai Petroleum's Q3FY18 results (Outperformer) - Inventory gains drive another strong qtr

Q3FY18 highlights

Chennai Petroleum (CPCL) reported earnings of Rs3.9bn, +33% yoy, higher than estimates of Rs3.3bn. Higher than estimated refining volumes of 2.7mt (IDFCe 2.6mt) and higher inventory gains of US$3.6/bbl (IDFCe US$2.5/bbl) supported the beat but a prior period tax adjustment of Rs660mn adversely impacted earnings.
EBITDA of Rs8.3bn therefore increased 55% yoy, well above estimates of Rs6bn.
Reported GRMs of US$8.5/bbl was up 35% yoy, higher than estimates of US$7.5/bbl. Core GRMs of US$5/bbl however dipped US$0.1/bbl yoy and were lower than estimates of US$5.4/bbl. Inventory gain of US$3.6/bbl was higher than estimates of US$2.5/bbl.
Refining utilisation for Q1 at 95%, highest in the last 5 qtrs. 9MFY18 thruput at 8mt, implying average utilisation of 92.5%.

Key positives: Higher refining thruput

Key negatives: Core GRMs lower than estimates for the quarter

Impact on financials: FY18/19/20E EPS tweaked +4.7/+2/+4.3% to factor revised thruput/GRM estimates. TP revised to Rs532/sh.

Valuations & View: the road ahead looks attractive

We remain sanguine on CPCL’s prospects over the next 18 months. CPCL we believe will see the benefits of robust refining utilisation and improving GRMs coupled with the residual upgrade/revamp of secondary units over FY18E to reflect in higher earnings trajectory over FY18-20E. We believe that the company is seeing a steady improvement in distillate yields and will also improve the heavy crude mix in their sourcing portfolio. The steady improvement in refining environment implies FY18-20E GRMs would range between US$6.4-7.5/bbl, up sharply from US$5.5/bbl average over FY12-17. The Rs31bn residual upgrade, the crude pipeline replacement and the DHDS unit revamp are estimated to add incremental US$0.5-0.6/bbl to GRMs over FY18/19E, supporting estimates of a 16% CAGR in earnings over FY18-20E. At CMP stock trades at attractive multiples of 5.3x FY19E EPS/4.9x EV/EBITDA. Reiterate Outperformer.

22/01/2018 5 EN

Underlying

Chennai Petroleum

Chennai Petroleum Corporation Limited. Chennai Petroleum Corporation Limited (CPCL) is a holding company. The Company operates in downstream petroleum sector. CPCL has approximately two refineries with a combined refining capacity of over 11.5 million tons per annum (MMTPA). The Manali Refinery has a capacity of approximately 10.5 MMTPA and is a refinery with fuel, lube, wax and petrochemical feedstocks production facilities. CPCL's second refinery is located at Cauvery Basin at Nagapattinam, which was set up in Nagapattinam with a capacity of approximately 0.5 MMTPA and later enhanced to 1.0 MMTPA. The main products of the Company are LPG, Motor Spirit, Superior Kerosene, Aviation Turbine Fuel, High Speed Diesel, Naphtha, Bitumen, Lube Base Stocks, Paraffin Wax, Fuel Oil, Hexane and Petrochemical feed stocks. The Wax Plant at CPCL has an installed capacity of over 30,000 tons per annum, which is designed to produce paraffin wax for manufacture of candle wax, waterproof formulations and match wax.

See profile

INE178A01016 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Chennai Petroleum's Q3FY18 results (Outperformer) - Inventory gains drive another strong qtr

Increased risk weighs on CHENNAI PTL.CORP.LTD., penalising its rating down to Negative

Chennai Petroleum's Q3FY19 results (Outperformer) - A very weak quarter!

Chennai Petroleum's Q2FY19 results (Outperformer) - Dissappointing operating performance

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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