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CPCL: Riding the oil boom - Views on News from Equitymaster
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CPCL: Riding the oil boom
May 15, 2008

Performance summary
  • Topline grows by 13.5% YoY during FY08 driven by gross refining margins (GRMs) of US$ 8.47 per barrel, up from US$ 5 per barrel last year.
  • EBITDA margins expand to 7.3% during FY08, once again led by increased GRMs.

  • Other income more than doubles YoY in FY08 due to foreign exchange fluctuation to the tune of Rs 861 m.

  • Bottomline registers a growth of 99% YoY during FY08 due to expansion in operating margins and higher other income.

  • Topline and bottomline grow 47 % YoY and 82 % YoY respectively in 4QFY08. GRMs for 4QFY08 were US$ 9.59 per barrel (4QFY07: US$ 6.42/bbl)

Standalone financial snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 57,252 83,995 46.7% 246,948 280,186 13.5%
Expenditure 53,233 77,190 45.0% 234,477 259,790 10.8%
Operating profit (EBDITA) 4,019 6,804 69.3% 12,472 20,396 63.5%
EBDITA margin (%) 7.0% 8.1% 5.1% 7.3%
Other income 338 (327) NA 640 1,285 100.8%
Interest 577 518 -10.2% 1,883 1,948 3.5%
Depreciation 662 660 -0.2% 2,419 2,516 4.0%
Profit before tax 3,118 5,299 69.9% 8,809 17,216 95.4%
Tax 1,227 1,860 51.5% 3,156 5,987 89.7%
Profit after tax/(loss) 1,891 3,439 81.9% 5,653 11,230 98.7%
Net profit margin (%) 3.3% 4.1% 2.3% 4.0%
No. of shares (m) 148.9 148.9
Diluted earnings per share (Rs) 75.4
Price to earnings ratio (x) 4.7

What has driven performance in FY08?
  • CPCL reported a topline growth of 13.5% YoY during FY08 driven by gross refining margins (GRMs) of US$ 8.47 per barrel, up from US$ 5 per barrel last year. GRMs for 4QFY08 were at US$ 9.59 per barrel (US$ 6.42 per barrel in 4QFY07).

  • CPCL achieved a crude thruput of 10,260 thousand metric tones (TMT) in FY08. The Manali refinery achieved a thruput of 9,800 TMT in FY08, up from 9,783 TMT in FY07. However, the Cauvery basin refinery attained a thruput of 460 TMT in FY08, down from 618 TMT in FY07 due to restricted availability of crude.

    Cost break-up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Raw materials 51,975 75,651 45.6% 228,015 254,060 11.4%
    % sales 90.8% 90.1%   92.3% 90.7%  
    Staff cost 607 450 -25.8% 1,506 1,426 -5.3%
    % sales 1.1% 0.5%   0.6% 0.5%  
    Other expenditure 652 1,089 67.1% 4,955 4,304 -13.2%
    % sales 1.1% 1.3%   2.0% 1.5%  
    Total cost 53,233 77,190 45.0% 234,477 259,790 10.8%
    % sales 93.0% 91.9%   94.9% 92.7%  

  • On the expenditure front, raw material costs increased by 11% in FY08 in absolute terms. However, on a percentage of sales basis, there was a decline of 1.6%. This decline combined with the fall in staff cost and other expenditure (both on an absolute as well as percentage of sales basis) aided the company’s operating margins.

  • Four new crudes were processed during FY08 at the Manali refinery and taken in CPCL’s crude procurement basket. The crudes are Umm Shaiff (UAE), Essider (Libya), Cabinda (Angola) and Arab Mix 50:50 (Saudi Arabia). During the year, the ATF produced at Manali refinery was approved for the use in the Indian Armed Forces.

  • CPCL’s direct customer base for sale for wax, sulphur, hexane and other speciality products increased by 175 during the year to reach 4,112.

  • A 15 MMTPA new grassroot refinery and petrochemical complex is proposed to be set up at Ennore near Chennai. A resid upgradation project is planned to improve distillates yield and refinery margins, at an estimated cost of Rs 32 bn. It expected to be commissioned by the end of 2011. An auto fuel project is planned for the production of Euro-IV compliant MS/HSD at an estimated cost of Rs 24 bn by May2010. The capacity of refinery-III is being enhanced from 3 MMTPA to 4 MMTPA at an estimated cost of Rs 1.3 bn, to be completed by mid 2009.

What to expect?
At the current price of Rs 354, the stock is trading at a multiple of 5.3 times our estimated FY10 earnings. Given the degree of cushion the company enjoys presently in its GRMs and its strategy of low cost debottlenecking and improvement of distillate yields going forward, we maintain our view on the company.

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