Chennai Petroleum's Q3FY19 results (Outperformer) - A very weak quarter!
Q3FY19 highlights
- Chennai Petro (CPCL) reported a second successive weak qtr, driven by continued weakness in Asian benchmark GRMs and high inventory losses. Resultant, CPCL reported a net loss of Rs3.7bn (Q2FY19 PAT of Rs270mn, IDFCe Rs1.8bn). For 9MFY19 CPCL has reported a net loss of Rs1.84bn (9MFY18 PAT at Rs7.36bn)
- Core GRMs of $3/bbl (Q2FY19 $3.2/bbl, IDFCe $4.2/bbl) and inventory loss of ~$4.1/bbl (IDFCe $1.1/bbl, Q2FY19 gain of $1.75/bbl) were both well below estimates, dragging profitability for the qtr.
- Reported EBITDA loss of Rs3.5bn and reported net loss of Rs3.7bn were well below IDFCe EBITDA loss/net loss of Rs559mn/Rs1.8bn respectively. 9MFY19 EBITDA of Rs3.45bn has declined 79% yoy.
- Depreciation of Rs1.1bn (+30% yoy, in line) and Interest cost of Rs1.1bn (+7% yoy, IDFCe Rs1bn).
Key positives: Refining utilisation healthy barring Dec shutdown
Key negatives: Core GRMs lower than estimates for the quarter, depreciation rose sharply
Impact on financials: FY19/20E EPS reduced -95/53% to factor revised GRM/depreciation/interest cost estimates. TP revised to Rs280/sh.
Valuations & View: Near term weak, FY21E to see a recovery
Near term prospects for independent refiners like CPCL remain extremely challenging, with the concerns on global demand weighing on benchmark refining margins even as US refiners pump way more gasoline than required to maximise diesel sales (one cannot be produced without the other). While the optimisation projects of CPCL are expected to improve complexity of the refinery (Delayed coker, DHDS revamp and new crude pipeline) benefits from the same would only be evident as macro environment improves. We continue to see a big delta in GRMs post IMO regulations in FY21E, which underpins our optimistic estimates for earnings in FY21E despite the disappointment of last 2 quarters. We have however suitably adjusted our FY19/20E GRM assumptions down by US$1.5-2/bbl to factor the weakness in the operational environment. 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.
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