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CPCL: Taking it on the chin - Views on News from Equitymaster
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  • Dec 11, 2001

    CPCL: Taking it on the chin

    Chennai Petroleum Corporation Ltd. (CPCL) was acquired by Indian Oil Corporation Ltd. (IOC) at the end of FY01 for Rs 5.1 bn. The Government undertook re-structuring in the industry, as the belief was that stand-alone refineries were unlikely to withstand volatility in oil prices and a deregulated market environment.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net sales 14,636 13,776 -5.9% 31,563 29,833 -5.5%
    Other Income 26 54 108.4% 47 91 92.0%
    Expenditure 13,750 13,888 1.0% 30,083 29,284 -2.7%
    Operating Profit (EBDIT) 886 (112)   1,480 550 -62.9%
    Operating Profit Margin (%) 6.1% -0.8%   4.7% 1.8%  
    Interest 318 297 -6.3% 635 632 -0.4%
    Depreciation 270 244 -9.8% 540 496 -8.1%
    Profit before Tax 324 (599)   352 (488)  
    Tax 97 11 -89.1% 106 19 -82.0%
    Profit after Tax/(Loss) 227 (609)   246 (507)  
    Net profit margin (%) 1.5% -4.4%   0.8% -1.7%  
    No. of Shares 148.0 149.0   148.0 149.0  
    Diluted earnings per share* 6.1 (16.4)   3.3 (6.8)  
    P/E Ratio   -     -  

    The topline performance for quarter ended September '01 was better compared to industry peers while 1HFY02 performance is in line with industry trends. The decline in sales is likely due to both drop in product offtake and prices. Most companies have reported lower utilisation rates and hence reduced throughput during the first half of the current fiscal. The slowdown, which took grip over the first half led to lower petroleum product offtake.

    While sales have dipped, the company has not been able to squeeze operating costs leading to an erosion in margins. The reduced sales and lower margins have significantly impacted operating profits. In fact, for 2QFY02 the company has slipped into operating loss. OPM for the quarter and half year ended September '01 is lower by 690 and 290 basis points respectively. Most companies have reported lower margins for the same period. However, earnings of stand-alone refineries are more volatile due to their dependence solely on refining margins. Having said that, Kochi Refineries Ltd. (KRL) was able to align costs better with the topline trends leading to an improvement in margins.

    Pre-tax profits of the company have slipped into the red despite the higher other income. CPCL seems to have been hit hard by the combination of high oil prices and reduced demand. Tax for the concerned periods include deferred tax provisioning. Accumulated deferred tax upto March '01 will be adjusted against reserves at the end of fiscal '02.

    Currently, the stock is trading at Rs 22.9. Despite the poor results the stock is seeing strength due to prices of oil falling sharply over the past two months. Also, sentiment towards energy stocks seems upbeat with the impending sector deregulation not far away.



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