Chennai Petroleum's Q1FY19 results (Outperformer) - Higher inventory gains help earnings
Q1FY19 highlights
- Chennai Petroleum (CPCL) reported earnings of Rs1.6bn, +4.6x yoy (IDFCe Rs1.4bn). Higher GRMs of US$7.1/bbl (IDFCe US$5.9/bbl) driven by higher inventory gains and lower employee expenses of Rs1.3bn (-12% yoy) supported earnings.
- EBITDA of Rs4.5bn (+129% yoy, IDFCe Rs3.6bn), EBIT of Rs3.4bn (+178% yoy, IDFCe Rs2.5bn. However tax rate of 38% for the quarter was higher than est (25%) dragging net earnings.
- Reported GRMs of US$7.1/bbl improved US$3.3/bbl yoy (IDFCe US$5.9/bbl) driven by sharply higher inventory gains (US$3.6/bbl vcs Q1FY18 loss of US$1.6/bbl and IDFCe US$1.6/bbl gain). However core GRMs of US$3.5/bbl was the lowest in last 9 qtrs, below IDFe US$4.3/bbl.
- Refining utilisation for Q1 at 91%, lowest in the last 4 qtrs, owing to a shutdown in the quarter.
Key positives: Lower opex
Key negatives: Core GRMs lower than estimates for the quarter, depreciation rose sharply
Impact on financials: FY19/20E EPS reduced -20% to factor revised GRM/depreciation/interest cost estimates. TP revised to Rs416/sh.
Valuations & View: the road ahead looks attractive
Despite the disappointment on core margins, we remain optimistic on CPCL’s prospects over the next 18 months. The commissioning of Delayed coker unit, new secondary processing units and DHDS revamp in Feb 2018, and the expected completion of crude pipeline project by July 2018 are expected to materially improve distillate yields and also improve heavy crude mix for the sourcing, reducing input costs over FY19-20E. Some part of the optimisation is already visible in operating metrics with the highest ever refining thruput of 10.8mt and distillate yield of 73.2% seen in FY18. We expect GRMs to average US$6.6/7 per bbl over FY19/20E. With Company maintaining dividend yield of ~6% and current valuations implying EV/E of just 4x FY20E, we believe valuations are compelling for the stock. Reiterate outperformer.
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.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.