KRL: Swimming against the tide - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

KRL: Swimming against the tide

Feb 26, 2002

Kochi Refineries Ltd. has not been able to stem the slide in sales it has been experiencing over the past four consecutive quarters. Reduced consumption, as the domestic economy shifted into lower gear and lower international petroleum product prices pulled down sales over the concerned periods.

(Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
Net sales 18,274 15,897 -13.0% 53,650 44,015 -18.0%
Other Income 224 55 -75.2% 705 210 -70.2%
Expenditure 17,703 15,176 -14.3% 52,025 41,886 -19.5%
Operating Profit (EBDIT) 572 722 26.2% 1,625 2,130 31.0%
Operating Profit Margin (%) 3.1% 4.5%   3.0% 4.8%  
Interest 285 299 5.0% 830 903 8.8%
Depreciation 258 274 6.4% 750 817 8.9%
Profit before Tax 253 204 -19.4% 750 620 -74.2%
Tax 124 41 -67.4% 336 194 -42.2%
Profit after Tax/(Loss) 129 163 27.1% 415 426 2.8%
Net profit margin (%) 0.7% 1.0%   0.8% 1.0%  
No. of Shares 68.9 138.5   68.9 138.5  
Diluted earnings per share* 3.7 4.7   4.0 4.1  
P/E Ratio   7.8     9.0  

The 3QFY02 topline performance of the company is similar to industry peers. KRL had reported a steep decline in sales for 1QFY02, which has pulled down performance for the nine months ended December '01. An encouraging sign is the growth in throughput, which had registered a drop in the first two quarters of the fiscal. In 3QFY02, throughput grew by 7.5% YoY, which suggests that the financials have been hit by weaker realisations. Petroleum product realisations are likely to have declined by 19% YoY in the third quarter.

Having said that, decline in sales seems to be the only common feature with industry peers. Contrary to industry trends, the company has reported higher operating profits, operating margins and bottomline. Operating margins, which increased by 140 and 180 basis points for the concerned periods has helped the company register higher operating profits. Better margins is due to expenses declining at a faster clip compared to sales, despite a huge jump in staff costs. During the concerned quarter, the company entered into a long term employee compensation settlement with retrospective effect, which has led to tripling in staff costs. Expenses have been reigned in largely due to lower raw material (crude oil) costs, which is the main constituent of operating expenses. Oil procurement cost has declined by approximately 25% to $21 / barrel. With Bharat Petroleum Corp. (BPCL) acquiring KRL, contributing to the lower procurement costs could be increased bulk crude purchases. In 2QFY02, we had mentioned KRL benefitting from the BPCL effect.

Interest and depreciation charges have been kept under control. However, in the previous fiscal, these cost heads had escalated dramatically, which is leading to a lower YoY effect. Diesel hydro-desulphurisation (DHDS) plant, which was commissioned in FY00, was set up at a cost of Rs 8.5 bn. Consequently, the capital expenditure led to higher interest and depreciation expenses for the fiscal ended March '01. Higher interest could also be due to funds being blocked in the oil pool account (OPA), which led to the company resorting to short-term borrowings for meeting its working capital requirements.

At a pre-tax level, the company is showing a YoY decline in performance. This is due to a significant drop in other income. Removing other income, pre-tax profits have risen considerably, indicating improvement in quality of earnings. The company has provided for deferred taxes, as per accounting standard-22. Effective tax of the company has declined by 60 basis points during the concerned periods.

At Rs 37 the scrip is trading on a P/E multiple of 9x 3QFY02 annualised earnings, similar to the valuations in the previous quarter. The scrip normally trades in a band of 3x-6x earnings. The scrip could be remaining firm due to the likely divestment of BPCL in the early part of next fiscal. The acquirer of BPCL will also have to make an open offer to the shareholders of KRL.

Equitymaster requests your view! Post a comment on "KRL: Swimming against the tide ". Click here!


More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


  • Track your investment in KOCHI REFINERIES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks