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Research
Chennai Petroleum - Poor fare; but bottom closer - Elara Capital
Posted On : 2012-02-19 04:01:00( TIMEZONE : IST )
Poor fare; but bottom closer
Forex losses continue to hit hard
CPCL reported another poor quarter with in-line revenue of INR111bn but forex losses hitting the EBITDA and bottom-line. The Q3FY12 EBITDA came in at INR619mn, significantly below Street estimates of INR1.5-2.0bn, while CPCL reported a net loss of INR634mn. The company reported GRMs of USD3.36/bbl, below our estimate of USD4.3/bbl. The Q3FY12 throughput was also affected marginally due to the cyclone hitting the east coast leading to a standstill in crude supply around Dec'11-end.
Key takeaways from concall: GRMs break-up and refinery plans
- The inventory gain for Q3FY12 was INR1.48bn (USD1.48/bbl), while the exchange related losses net of crude (INR2.23bn) and product gains (INR0.20bn) were INR2.03bn (USD2.04/bbl). With the reported GRMs of USD3.36/bbl, our analysis suggests that the operational margin was ~USD3.9/bbl. We expect better Q4FY12 GRMs, as well as FY13 due to recovery in spreads of light products.
- CPCL achieved ~70% of distillate yield in Q3FY12 (22% light and 47.9% middle distillates) while the fuel and loss was higher 9.8% due to additional fuel consumption for secondary units. Post the residue upgradation project in FY13, CPCL expects the distillate yield to reach 85-90%. Also, CPCL would be taking a 2-month shutdown in Jun/Jul 2012, post which another 0.6MMT of capacity will be blended in through debottlenecking.
- Capex for FY12 so far stands at INR3.2bn, and it should be INR5bn for FY12 and around INR8bn for FY13.
Still some pain left, but bottom getting closer; Upgrade to Reduce
We upgrade CPCL to Reduce from Sell as we see the stock bottoming out after declining 14% and under-performing the Sensex by 23% since our downgrade in Oct'11. We see operational concerns hurting earnings for another 2-3 quarters, which should keep CPCL under pressure. In the near term, we would turn positive only if CPCL corrects another 10-12% from the current levels. CPCL trades at 6x EV/EBITDA on FY14 estimates, a slightly rich multiple for a simple refiner. We value CPCL at 5.5x EV/EBITDA, revising our TP to INR160/sh.
