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Chennai Petro: Spectacular show - Views on News from Equitymaster
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Chennai Petro: Spectacular show
Jul 18, 2008

Performance summary
  • Topline grows by 80.9% YoY during 1QFY09 driven by gross refining margins (GRMs) of US$ 15.89 per barrel, up from US$ 8.76 per barrel last year.
  • EBITDA margins expand to 10.4% during 1QFY09, once again led by higher GRMs.
  • Bottomline registers a growth of 118% YoY during 1QFY09 due to expansion in operating margins and higher other income.


Standalone financial snapshot
(Rs m) 1QFY08 1QFY09 Change
Net sales 62,217 112,532 80.9%
Expenditure 56,303 100,843 79.1%
Operating profit (EBDITA) 5,914 11,689 97.6%
EBDITA margin (%) 9.5% 10.4%  
Other income 83 101 22.5%
Interest 460 380 -17.4%
Depreciation 637 639 0.3%
Profit before tax 4,900 10,771 119.8%
Tax 1,668 3,739 124.1%
Profit after tax/(loss) 3,232 7,033 117.6%
Net profit margin (%) 5.2% 6.2%  
No. of shares (m) 148.9 148.9  
Diluted earnings per share (Rs)*   100.9  
Price to earnings ratio (x)*   3.0  
*On trailing twelve months earnings

What has driven performance in 1QFY09?
  • CPCL reported a topline growth of 80.9% YoY during 1QFY09 driven by gross refining margins (GRMs) of US$ 15.89 per barrel, up from US$ 8.76 per barrel last year.

    Cost break-up
    (Rs m) 1QFY08 1QFY09 Change
    Raw materials 55,018 96,859 76.0%
    % sales 88.4% 86.1%  
    Staff cost 303 857 183.2%
    % sales 0.5% 0.8%  
    Other expenditure 982 3,127 218.4%
    % sales 1.6% 2.8%  
    Total cost 56,303 100,843 79.1%
    % sales 90.5% 89.6%  

  • On the expenditure front, raw material costs increased by 76% in 1QFY09 in absolute terms on the back of spiraling crude prices. However, on a percentage of sales basis, there was a decline of 2.3%. This decline aided the company’s operating margins.

  • Other expenditure registered a growth of 218% YoY in 1QFY09 due to foreign exchange fluctuation loss to the tune of Rs 1.9 bn.

  • 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 is 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 303, the stock is trading at a multiple of 3.2 times our estimated FY11 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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