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Chennai Petro: GRMs swinging back - Views on News from Equitymaster
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Chennai Petro: GRMs swinging back
Jul 28, 2009

Performance summary
  • Topline declines by 50% YoY during 1QFY10 due to lower realisations.
  • EBITDA margins erode to 8.3% during the quarter, down from 10.4% in 1QFY09 due to a crash in gross refining margins (GRMs) to US$ 6.88 per barrel, down from US$ 15.89 per barrel in 1QFY09.
  • Other income zooms over 8 times on account of gains due to foreign exchange fluctuation.
  • Bottomline declines 57% YoY during the quarter on account of plummeting GRMs, inspite of higher other income.


Standalone financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 112,532 56,604 -49.7%
Expenditure 100,843 51,927 -48.5%
Operating profit (EBDITA) 11,689 4,677 -60.0%
EBDITA margin (%) 10.4% 8.3%  
Other income 101 884 772.8%
Interest 380 279 -26.5%
Depreciation 639 665 4.1%
Profit before tax 10,771 4,617 -57.1%
Tax 3,739 1,570 -58.0%
Profit after tax/(loss) 7,033 3,047 -56.7%
Net profit margin (%) 6.2% 5.4%  
No. of shares (m)   148.9  
Diluted earnings per share (Rs)*   (26.7)  
Price to earnings ratio (x)*   NA  
*On trailing twelve months earnings

What has driven performance in 1QFY10?
  • CPCL reported a topline decline of 50% YoY during 1QFY10. It achieved a crude throughput of 2.69 m metric tonnes (MMT) during the quarter, marginally down from 2.74 MMT in 1QFY09. The performance has been adversely affected due to a steep fall in crude and product prices (on YoY basis and not sequentially). Gross refining margins (GRMs) during 1QFY09 was US$ 6.88 per barrel, down from US$ 15.89 per barrel in 1QFY09. It may be noted that they had crashed to US$ -18.04 per barrel in 3QFY09.

  • On the expenditure front, raw material costs declined by 48% in 1QFY10 in absolute terms. However, as a percentage of sales basis, there was an increase of 3%. This increase accounted for the decline in the company’s operating margins.

  • Other income includes foreing exchange fluctuation gain of Rs 806 m during 1QFY10. Foreign exchange fluctuation loss of Rs 2 bn for 1QFY09 is included in other expenditure.

What to expect?
The stock is currently trading at a price of Rs 176. The company has recovered from the extreme fall in the GRMs in 3QFY09 due to inventory losses caused by the speedy decline in petroleum product prices internationally. We had mentioned then 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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