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Chennai Petro: GRMs turn positive - Views on News from Equitymaster
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Chennai Petro: GRMs turn positive
Feb 10, 2010

Performance summary
  • Topline grows by 22% YoY during 3QFY10 due to higher throughput and realisations.
  • EBITDA margins improve to 1.8% during the quarter, up from -32.1% in 3QFY09. This is due to an improvement in gross refining margins (GRMs) to US$ 3.44 per barrel, up from US$ -18.04 per barrel in 3QFY09.
  • Other income grows by 3 times during the quarter.
  • Bottomline turns positive during the quarter on account of better GRMs and higher other income.
  • For 9mFY10, topline declines by 28%, while the bottomline turns positive.


Standalone financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 56,175 68,498 21.9% 271,539 195,074 -28.2%
Expenditure 74,187 67,294 -9.3% 278,397 185,974 -33.2%
Operating profit (EBDITA) (18,013) 1,204   (6,858) 9,100 -232.7%
EBDITA margin (%) -32.1% 1.8%   -2.5% 4.7%  
Other income 221 891 303.5% 480 1,661 245.7%
Interest 834 354 -57.5% 1,820 949 -47.9%
Depreciation 638 683 7.1% 1,913 2,027 6.0%
Profit before tax (19,263) 1,059   (10,111) 7,784.40  
Tax (6,564) (1,145)   (3,418) 1,142  
Profit after tax/(loss) (12,699) 2,204   (6,693) 6,643  
Net profit margin (%) -22.6% 3.2%   -2.5% 3.4%  
No. of shares (m)         149  
Diluted earnings per share (Rs)*         63  
Price to earnings ratio (x)*         3.9  
*On trailing twelve months earnings

What has driven performance in 3QFY10?
  • Chennai Petro reported a topline growth of 22% YoY during 3QFY10. It achieved a crude throughput of 2.75 m metric tonnes (MMT) during the quarter, up from 2.57 MMT in 3QFY09. Gross refining margins (GRMs) during 3QFY10 was US$ 3.44 per barrel, up from US$ -18.04 per barrel in 3QFY09.

  • On the expenditure front, raw material costs declined by 8.5% YoY in 3QFY10 in absolute terms. As a percentage of sales basis, there was a decline of 32%.This decline accounted for the increase in the company’s operating margins.

    Cost break up
    (Rs m) 3QFY09 3QFY10 Change
    Raw materials 71,548 65,470 -8.5%
    % sales 127.4% 95.6%  
    Staff cost 366 593 62.1%
    % sales 0.7% 0.9%  
    Other expenditure 2,273 1,231 -45.9%
    % sales 4.0% 1.8%  
    Total cost 74,187 67,294 -9.3%
    % sales 132.1% 98.2%  

  • Other income includes foreing exchange fluctuation gain of Rs 658 m during 3QFY10. Foreign exchange fluctuation loss of Rs 956 m for 3QFY09 is included in other expenditure.

What to expect?
The stock is currently trading at a price of Rs 244 at trailing 12-months earnings multiple of 4 times. The company has recovered from the extreme fall in the GRMs in 3QFY09 due to inventory losses caused by the speedy decline in petroleum product prices internationally. We had mentioned then that the GRMs will reverse going forward and revert to more comfortable levels, which they have. However, from this point forward, we expect GRMs to hover around the present mark. As such, we expect the stock to have a marginal upside from these levels. Also, we believe pure refining stocks are a risky bet over the long term as they have very little control over their fortunes and are excessively dependent on the swings of GRMs worldwide.

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