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Chennai Petro: Low GRMs take toll

Jun 23, 2009

Performance summary
  • Topline increases by 14% YoY during FY09.
  • EBITDA margins erode to -0.5% during the year, down from 7.3% in FY08 on the back of a crash in gross refining margins (GRMs) to US$ 1.22 per barrel, down from US$ 8.47 per barrel in FY08.
  • Other income declines by 58%.
  • Bottomline plunges into the negative on account of plummeting GRMs and lower other income.
  • Topline declines by 43% YoY in 4QFY09, while bottomline declines by 21%. GRMs for 4QFY09 were US$ 6.6 per barrel (US$ 9.59 per barrel in 4QFY08).

Standalone financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 83,995 48,100 -42.7% 280,186 319,639 14.1%
Expenditure 77,190 42,905 -44.4% 259,790 321,303 23.7%
Operating profit (EBDITA) 6,804 5,194 -23.7% 20,396 (1,664)  
EBDITA margin (%) 8.1% 10.8%   7.3% -0.5%  
Other income (327) 60 -118.4% 1,285 541 -57.9%
Interest 518 417 -19.6% 1,948 2,237 14.8%
Depreciation 660 659 -0.3% 2,516 2,572 2.2%
Profit before tax 5,299 4,180 -21.1% 17,216 (5,931)  
Tax 1,860 1,460 -21.5% 5,987 (1,958)  
Profit after tax/(loss) 3,439 2,720 -20.9% 11,230 (3,973)  
Net profit margin (%) 4.1% 5.7%   4.0% -1.2%  
No. of shares (m)         148.9  

What has driven performance in FY09?
  • CPCL reported a topline growth of 14% YoY during FY09. It achieved a crude thruput of 10.13 m metric tonnes (MMT) during the fiscal, down from 10.27 MMT in FY08. During 4QFY09, the company achieved volumes of 2.5 MT, down from 2.7 in the same period last year.

  • Gross refining margin (GRM) during FY09 crashed to US$ 1.22 per barrel, down from US$ 8.47 per barrel in FY08. GRM for 4QFY09 was US$ 6.6 per barrel, lower than US$ 9.59 per barrel in 4QFY08. In 3QFY09, the company had reported GRMs of US$ -18.04 per barrel on account of inventory losses.

  • On the expenditure front, raw material costs increased by 22% in FY09 in absolute terms. Moreover, on a percentage of sales basis, there was an increase by 6%. This increase combined with the rise in other expenditure (both on an absolute as well as percentage of sales basis) hampered the company’s operating margins.

  • CPCL received a discount of Rs. 13 bn from ONGC on crude oil purchased and passed on as discount on products sold to Indian Oil. Accordingly, gross sales and consumption of raw materials for FY09 are net of discount.

  • Other expenditure includes exchange fluctuation loss of Rs 5.3 bn for FY09. Exchange fluctuation gain of Rs .9 m for FY08 is included in other income.

What to expect?
The stock is currently trading at a price of Rs 179. The company has recovered from the extreme fall in the GRMs in the previous quarter due to inventory losses caused by the speedy decline in petroleum product prices internationally. We had mentioned 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.

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Jun 4, 2020 (Close)


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