Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Kochi Ref: Planned shutdown kicker - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 12, 2002

    Kochi Ref: Planned shutdown kicker

    After five consecutive quarters of YoY decline in sales, Kochi Refineries Ltd. (KRL) posted a sharp turnaround in turnover growth for the quarter ended June '02. Sales in the previous fiscal were impacted by lower offtake and realisation for petroleum products. The refining industry has faced a challenging 24 months with volatile crude oil prices and global & domestic economic downturn.

    (Rs m) 1QFY02 1QFY03 Change
    Net sales 10,315 22,500 118.1%
    Other Income 70 45 -35.7%
    Expenditure 9,579 21,200 121.3%
    Operating Profit (EBDIT) 736 1,300 76.6%
    Operating Profit Margin (%) 7.1% 5.8%  
    Interest 279 240 -13.8%
    Depreciation 258 275 6.8%
    Profit before Tax 270 830 207.4%
    Tax 86 298  
    Profit after Tax/(Loss) 184 532 189.6%
    Net profit margin (%) 1.8% 2.4%  
    No. of Shares 138.2 138.5  
    Diluted earnings per share* 5.3 15.4  
    P/E Ratio   2.8  

    KRL underperformed the industry in FY02 at the turnover level, as the company undertook a planned shut down for 53 days in first quarter of FY02. Consequently, outperformance in 1QFY03 is due to regular operations at the plant. Throughput of the company increased by 70% YoY to 2.1 m metric tonnes (MMT) during the concerned period. Having said that, on annualised basis, for 1QFY03 the company achieved operating rates of 112% with throughput on sequential basis rising by 13.5%.

    International crude oil prices (Brent blend) during the concerned quarter declined by an estimated 9% YoY to $25/ barrel. And with the global economy weakening over the same period, international petroleum product prices are estimated to have remained soft, keeping gross refining margins (GRMs) under pressure. Reliance Petroleum reported marginal decline in realisations. However, contrary to our expectation, realisation at public sector refining companies has increased with feedstock (crude oil) price/ barrel rising at a faster clip, leading to lower margins. Realisation and crude procurement price for KRL increased by an estimated 22% and 28% YoY respectively. The company entered into a long term employee compensation settlement with retrospective effect in 3QFY02 leading to a jump in staff costs.

    Interest expense of KRL almost tripled in FY01, as the company commissioned the diesel hydro-desulphurisation (DHDS) plant in FY00 at a cost of Rs 8.5 bn. Consequently, the interest and depreciation expenses were passed through the income statement. Over the past two quarters, interest expense, YoY, has been declining. This could be due to repayment & refinancing of debt.

    KRL was acquired by Bharat Petroleum Corp. Ltd. (BPCL) at the end of FY01 for Rs 6.5 bn, as part of industry restructuring. The company operates a 7.5 MMTPA refinery. Considering the slowdown in petroleum consumption and the resultant over-capacity in the industry, KRL is unlikely to undertaken any expansion in the medium-term. Therefore, the company is a play on the refining cycle. Cost cutting is likely to be the earnings growth initiative. KRL is setting up a crude oil desk to ensure more efficient procurement of feedstock. In an effort to reduce transportation costs, a single buoy mooring (SBM) facility is being built for very large crude carriers (VLCC). Additionally, to enhance LPG market share of BPCL in the south, KRL is setting up a 70,000 TPA LPG plant at a cost of Rs 180 m. The plant is expected to be commissioned in July '03. However, the project is estimated to have a marginal impact (1.5%) on FY04E sales.

    At Rs 43 the scrip is trading on a multiple of 2.8x 1QFY03 annualised earnings, which is largely due to sharp growth in earnings. The scrip generally trades in a band of 3x-6x earnings. With global economic growth likely to remain anemic in FY03 and crude oil prices remaining firm due to OPEC production cuts and geo-political instability in mid-east, we reckon refining margins are likely to be squeezed further compared to FY02. 2QFY03 throughput is not going to get any boost from 'YoY effect'.



    Equitymaster requests your view! Post a comment on "Kochi Ref: Planned shutdown kicker". Click here!


    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Mahanagar Gas Ltd (IPO)

    Jun 21, 2016

    Should one subscribe to Mahanagar Gas IPO?

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    • Track your investment in KOCHI REFINERIES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks