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Passing through tough times…
We met the management of Chennai Petroleum Corporation Limited
(CPCL) to understand the company’s business and strategy in detail.
CPCL is an Indian Oil Corporation company that owns 51.9% in the
company while 15.4% is owned by National Iranian Oil Company (NIOC).
CPCL has two refineries with a combined refining capacity of 11.5
MMTPA. The Manali Refinery at Chennai has a capacity of 10.5 MMTPA
with a Nelson complexity of 8.2 and the second refinery is located at
Cauvery Basin at Nagapattinam that has a capacity of 1 MMTPA. CPCL
also has a wax plant with installed capacity of 30,000 tonnes per annum,
which is designed to produce paraffin wax. CPCL reported crude oil
throughput of 10.6 mmt and gross refining margins of US$ 4 per barrel in
FY14. Over the last 3 years, CPCL’s performance was negatively impacted
due to volatility in currency & crude oil prices and extended shutdown of
refineries. The company reported GRM’s of US$ 1.3/bbl, US$ 1/bbl and
US$ 4/bbl in FY12, FY13 and FY14, respectively.
ƒ Capex plans to improve yields
CPCL has two major projects under implementation, resid up-gradation
project and 42’ crude oil pipeline project. The resid up-gradation plant
expected to be set up at an estimated cost of |3110 crore will improve the
distillate yield from 70% to 76%. This project is expected to be completed
by Q3FY16. The other major project for the company is the new 42” crude
oil pipeline that will reduce pumping time and demurrage incidence. The
company has obtained the CRZ clearance and the last clearance from
NHAI under Ministry of Road Transport is due. After this approval, the
company will build the pipeline within a timeframe of 18 months at an
estimated cost of | 257 crore. These projects are expected to improve the
current GRM by ~US$2 per barrel.
ƒ Improvement in refining margins key to performance
CPCL needs to report Gross Refining Margins (GRM’s) of US$ 4 per barrel
to achieve break-even in profitability. With the GRM’s under pressure due
to global slowdown, CPCL had reported loss in the couple of years. CPCL
had reported GRM’s of US$ 1.9 per barrel in Q1FY15 which depicts that
the company may find it difficult to report improved performance in the
near future. Only, post the new resid up-gradation in H2FY17, we expect
an improvement in results. The company is currently trading at FY14
EV/EBITDA ratio of 6.7x and P/BV of 0.9.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Passing through tough times…
We met the management of Chennai Petroleum Corporation Limited
(CPCL) to understand the company’s business and strategy in detail.
CPCL is an Indian Oil Corporation company that owns 51.9% in the
company while 15.4% is owned by National Iranian Oil Company (NIOC).
CPCL has two refineries with a combined refining capacity of 11.5
MMTPA. The Manali Refinery at Chennai has a capacity of 10.5 MMTPA
with a Nelson complexity of 8.2 and the second refinery is located at
Cauvery Basin at Nagapattinam that has a capacity of 1 MMTPA. CPCL
also has a wax plant with installed capacity of 30,000 tonnes per annum,
which is designed to produce paraffin wax. CPCL reported crude oil
throughput of 10.6 mmt and gross refining margins of US$ 4 per barrel in
FY14. Over the last 3 years, CPCL’s performance was negatively impacted
due to volatility in currency & crude oil prices and extended shutdown of
refineries. The company reported GRM’s of US$ 1.3/bbl, US$ 1/bbl and
US$ 4/bbl in FY12, FY13 and FY14, respectively.
ƒ Capex plans to improve yields
CPCL has two major projects under implementation, resid up-gradation
project and 42’ crude oil pipeline project. The resid up-gradation plant
expected to be set up at an estimated cost of |3110 crore will improve the
distillate yield from 70% to 76%. This project is expected to be completed
by Q3FY16. The other major project for the company is the new 42” crude
oil pipeline that will reduce pumping time and demurrage incidence. The
company has obtained the CRZ clearance and the last clearance from
NHAI under Ministry of Road Transport is due. After this approval, the
company will build the pipeline within a timeframe of 18 months at an
estimated cost of | 257 crore. These projects are expected to improve the
current GRM by ~US$2 per barrel.
ƒ Improvement in refining margins key to performance
CPCL needs to report Gross Refining Margins (GRM’s) of US$ 4 per barrel
to achieve break-even in profitability. With the GRM’s under pressure due
to global slowdown, CPCL had reported loss in the couple of years. CPCL
had reported GRM’s of US$ 1.9 per barrel in Q1FY15 which depicts that
the company may find it difficult to report improved performance in the
near future. Only, post the new resid up-gradation in H2FY17, we expect
an improvement in results. The company is currently trading at FY14
EV/EBITDA ratio of 6.7x and P/BV of 0.9.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Other management meet highlights
ƒ The Nelson complexity of the refinery of CPCL is 8.2.
ƒ The company had a capex of |2500 crore for Euro 4 along with CDU
revamp on which the return was minimal on a cost plus basis.
ƒ The Resid up gradation project will be completed by December 2015
which will increase the distillate yield from 70% to 76%.
ƒ The 42’ pipeline has got the CRZ clearance and the last clearance is
required from NHAI. The project will be completed is 18 months
after the final clearance and will reduce pumping time and
demurrage incidence.
ƒ The new projects when commercially operational will improve
GRMs by US$ 2 per barrel.
ƒ The company mainly gets it crude oil from Saudi Arabia and Iraq.
ƒ The company gets MH crude from Bombay high fields using which
it produces wax and lube.
ƒ The company produces 30,000 tonnes of propylene and can
increase its production based on demand needs.
ƒ GST on petroleum products is still not clear however abolition of
Central Sales Tax (CST) will be beneficial for the company
ƒ The credit period of the company is expected to decrease from 15
days to 7 days from FY15 onwards. This is expected to reduce
interest costs by | 60 crore p.a.
ƒ The company had revenue decline in FY11 and FY12 due to
extended shutdown of its refinery, currency fluctuations, and
increase in crude prices etc.
ƒ The company has capex plans of | 900 crore, | 1451 crore and | 621
crore in FY15E, FY16E and FY17E, respectively.
ƒ CPCL has current debt of | 5600 crore out of which | 3500-4000
crore is working capital loan.
ƒ The company plans to raise equity via the rights issue in future. The
company has earlier also proposed its merger with IOC. The
shareholding of National Iranian Oil Company (NIOC) in CPCL since
inception has been a hindrance for CPCL to implement its above
corporate decisions.
LINK
http://content.icicidirect.com/mailimages/IDirect_CPCL_MgmtNote.pdf
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