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Chennai Petro: Back into the black - Views on News from Equitymaster

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Chennai Petro: Back into the black

Oct 29, 2009

Performance summary
  • Topline declines by 32% YoY during 2QFY10 due to lower realisations.
  • EBITDA margins improve to 4.6% during the quarter, up from 0.5% in 2QFY10 due to an improvement in gross refining margins (GRMs) to US$ 4.18 per barrel, up from US$ 1.68 per barrel in 2QFY09.
  • Other income turns negative on account of losses due to foreign exchange fluctuation.
  • Bottomline turns positive during the quarter on account of better GRMs, despite lower other income.
  • For 1HFY10, topline declines by 41%, while the bottomline falls 26%.

Standalone financial snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 102,833 69,971 -32.0% 215,365 126,575 -41.2%
Expenditure 103,367 66,753 -35.4% 204,210 118,680 -41.9%
Operating profit (EBDITA) (534) 3,218   11,155 7,895 -29.2%
EBDITA margin (%) -0.5% 4.6%   5.2% 6.2%  
Other income 158 (115)   260 770 196.5%
Interest 607 316 -48.0% 987 595 -39.7%
Depreciation 637 679 6.7% 1,275 1,345 5.4%
Profit before tax (1,619) 2,109   9,152 6,725 -26.5%
Tax (592) 717   3,146 2,286 -27.3%
Profit after tax/(loss) (1,027) 1,392   6,006 4,439 -26.1%
Net profit margin (%) -1.0% 2.0%   2.8% 3.5%  
No. of shares (m)         149  
Diluted earnings per share (Rs)*         (37)  
*On trailing twelve months earnings

What has driven performance in 2QFY10?
  • Chennai Petro reported a topline decline of 32% YoY during 2QFY10. It achieved a crude throughput of 2.76 m metric tonnes (MMT) during the quarter, up from 2.29 MMT in 2QFY09. Gross refining margins (GRMs) during 2QFY10 was US$ 4.18 per barrel, up from US$ 1.68 per barrel in 2QFY09. 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 35% in 1QFY10 in absolute terms. As a percentage of sales basis, there was a decline of 3.7%.This decline accounted for the increase in the company’s operating margins.

    Cost break up
    (Rs m) 2QFY09 2QFY10 Change
    Raw materials 99,794 65,298 -34.6%
    % sales 97.0% 93.3%  
    Staff cost 568 501 -11.8%
    % sales 0.6% 0.7%  
    Other expenditure 3,005 955 -68.2%
    % sales 2.9% 1.4%  
    Total cost 103,367 66,753 -35.4%
    % sales 100.5% 95.4%  

  • Other income includes foreing exchange fluctuation loss of Rs 232 m during 2QFY10. Foreign exchange fluctuation loss of Rs 1.9 bn for 2QFY09 is included in other expenditure.

What to expect?
The stock is currently trading at a price of Rs 216. 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. Also, we belive pure refining stocks are a risky bet over the long term as they have very little control over their fortunes and are excessively dependent on the swings of GRMs worldwide.

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Mar 26, 2019 12:29 PM


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