Kochi Refineries: On a roll… - Views on News from Equitymaster

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Kochi Refineries: On a roll…

May 5, 2003

Kochi Refineries Limited has announced its FY03 results posting a very strong performance. The company saw its topline grow by about 60%, while the bottomline spurted by about 562%. The increase in the sales volumes and in petroleum product prices (post dismantling of APM) were the key reasons for the impressive performance at the topline level. It must also be noted that the company undertook a planned shutdown for about 53 days in the first quarter of FY02. This has also added to the YoY growth in the turnover.

(Rs m)4QFY024QFY03ChangeFY02FY03Change
Net Sales 14,035 27,413 95.3% 58,050 92,334 59.1%
Other Income 139 77 -44.8% 349 342 -2.1%
Expenditure 13,075 22,512 72.2% 54,960 83,608 52.1%
Operating Profit (EBDIT) 960 4,901 410.5% 3,090 8,726 182.4%
Operating Profit Margin (%)6.8%17.9% 5.3%9.5% 
Interest 245 291 18.8% 1,147 949 -17.3%
Depreciation 289 291 0.8% 1,105 1,154 4.4%
Profit before Tax5664,396677.0%1,1876,965486.9%
Extraordinary items  -    -  
Tax 304 1,490 389.6% 498 2,405 382.8%
Profit after Tax/(Loss) 262 2,906 1011.3% 689 4,560 562.1%
Net profit margin (%)1.9%10.6% 1.2%4.9% 
No. of Shares 138.5 138.5   138.5 138.5  
Diluted Earnings per share*   5.032.9 
P/E Ratio     2.0  

The total expenditure of the company also increased by 52%. This was primarily because of the firm crude prices prevailing during FY03. Though the crude prices were higher in FY03, the prices of petroleum products also reflected the same. It must be noted that with the dismantling of APM, refining and marketing companies are free to keep the petroleum product prices in line with the international prices. The effect of APM dismantling thus helped the company to keep its operating margins at a higher level. Operating profit margins increased by 420 basis points in FY03.

The surge in returns on the refining margins was a major contributor to the significant growth in the bottomline. The gross refining margins during this year was Rs 1,490 per tonne as compared to Rs 860 per tonne last year.

If one were to look at the quarterly performance of the company, it becomes clear that the significant growth in the profit is mainly on account of the surge in the profits in the fourth quarter as against the same quarter in the previous year. To put things into perspective, the net profit of the company increased by a hefty 1011% in 4QFY03. The net profit for 4QFY03 accounted for about 64% of the total net profits in FY03. This increase was mainly because of the reimbursements of the central sales tax under recovery on LPG/motor spirit/kerosene oil/diesel for the full year. This was accounted for only in the last quarter of the year, as per the government scheme.

At the current price of Rs 67 the stock of the company is trading at a P/E of 2x FY03 earnings. The stock has run up 40% since the announcement of the results. Given the fact that the crude prices have gone down and also there is a decline in the petroleum products prices, the bottomline of the company may be under pressure in the first quarter of FY04.

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