Chennai petroleum

Chennai Petroleum: An Analysis of Financials and Market Potential

CMP -510 Market cap - 7500 crores

Financial Performance: Chennai Petroleum in Numbers

Chennai Petroleum has exhibited a strong financial performance in recent years. As of the latest financial year, the company’s price-to-earnings (PE) ratio stands at an attractive 4 times, indicating that the stock is undervalued in comparison to its earnings.

The market capitalization of Chennai Petroleum currently stands at 7,500 crores, reflecting the company’s size and market value. With sales amounting to an impressive 76,735 crores and a net profit of 3,534 crores(FY 22-23), Chennai Petroleum has proven its ability to generate substantial revenue and profitability.

The earnings per share (EPS) for the financial year 22-23 stands at 237, indicating that each share of Chennai Petroleum is generating substantial earnings.

Operational Efficiency and Debt Reduction

One of the key indicators of a company’s operational efficiency is its capacity utilization. Chennai Petroleum has achieved a remarkable capacity utilization rate of approximately 113% for the year, which signifies the effective utilization of its production capabilities.

In addition to operational efficiency, Chennai Petroleum has also demonstrated its commitment to reducing debt. During the year, the company successfully reduced its debt from 8,500 crores to 4,200 crores.

Based on the Oil and Gas Journal published in 2022, NCI of CPCL is 10.03, making it the fifth most complex refinery in India and second most among IOCL Group Refineries.

Gross Refinery Margins and Market Potential

Gross Refinery Margins (GRM) play a crucial role in determining the profitability of petroleum companies. Chennai Petroleum has consistently achieved GRM in the range of $10 to $13 for the year, indicating its ability to generate profit from refining operations.

Revenue Breakup and Competitive Advantage

Chennai Petroleum enjoys a competitive advantage in the market, primarily due to its diverse revenue breakup. The company offers a wide range of products such as high-speed diesel, motor spirit, naphtha, and other products like Paraffin Wax, Hexane, Micro Crystalline Wax (MCW), Sulphur, Petcoke, SN-150 Base oil, JP-5 & JP-7.

Chennai Petroleum Corporation Ltd. (CPCL), Manali, has recently commenced the supply of aviation fuel of Jet Propellant-5 (JP-5) grade for the Indian defence forces through the Chennai–Bengaluru oil pipeline (CBPL).

JP-5 is a high flash point fuel and the CPCL refinery is the only one to manufacture this grade in the country. Till now, the fuel was being sent via coastal tankers.

The CPCL, along with Indian Oil, has developed a standard operating procedure for moving the product through the pipeline. It is being sent to the IOCL terminal at Devanagonthi near Bangalore.

Reserves and Free Cash Flow

Chennai Petroleum boasts a healthy reserve of 6,132 crores, which translates to approximately Rs.411 per equity. This reserve not only provides the company with financial stability but also serves as a buffer during challenging market conditions.

The free cash flow (FCF) for the financial year 22-23 stands at an impressive 5,749 crores.

Other points

CPCL is investing in JV with IOCL in which CPCL will hold around 25% stake in the upcoming 9.5MMTA refinery in Nagnipattam which shall mostly be operational in 2 to 3 years.

MOAT

Revenue Mix from around 14 products as shown in their recent 2023 annual report. This will act as the strongest MOAT for the company which help it increase its operating margins.

Compared to peers the valuation of the company is only at PE of 4 & 7000 crores in market cap for a refinery with 10.5 MMTA capacity, 70,000 crores plus in revenue, profitable & debt to equity ratio at 0.54 which servers us an opportunity to look into the company.


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Risks associated with CPCL:

  1. Due to fluctuation in oil markets due to wars and other geopolitical tensions in the world the crack spreads are very volatile which may sometimes effect the profitability of the company brutally.
  2. The rise of EV vehicles in comings years may affect the demand of motor spirit & diesel.
  3. Company has debt of around 3500 crs which only can be easily repaid if crack spreads are stable.

My journey in CPCL starts from Jan 2022 when I first time came through the stock in a news for price rise from Rs.90 per share to around Rs.300 in 1-2 years of span.
Then did my research on the company for around 8 months still Aug-22 and invested in the company in aug-22 until December -22.
I am invested in the company still date and has given a return of 80 to 100% still date on my investment and still bullish on the company as it is coming with new refinery and it is steadily diversifying its product portfolio to other petroleum products.

Just Add on MOAT Part :
The main products of the Company like LPG, Motor Spirit, Superior Kerosene, Aviation Turbine Fuel, High Speed Diesel, Naphtha, Fuel Oil, Lube Base Stocks and Bitumen are being marketed by parent company IOCL (92%). The remaining specialty products like Paraffin Wax, Mineral Turpentine Oil (MTO), Hexane, Petrochemical feed stocks, Linear Alkyl Benzene Feedstock (LABFS), Petroleum Coke and Sulphur plus Products of national importance like Navy grade NATO Diesel, Missile fuel (JP-7 equivalent) and Rocket propellant fuel are directly marketed by CPCL (8%)

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Thank you… And to add more to this as per their latest annual report the management is more focused on the other specialty products and is targeting to generate more revenue from these products which will help the company to stabilize its margins.
Eagerly waiting for Q2 results which will be declared on 25th oct.

Yes …Reasonable valued share
Book Value basis on FY23 : 434.82
EPS : 237.29
ROCE : 55%
Dividend Payout : 27/- per share

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EPS for the quarter Rs 80/- any further update on result

Results are good, GRM is at 10 dollars for Q2, the only concern for Q3 will be the GRM as GRM have dropped to 2 to 4 dollars so company needs to have less inventory days that will mitigate the risk of lower GRMs.
Share price have support at 500 levels hopefully in coming days sentiment in markets turns bullish then we can expect good uptick in the share price.

Quick update on important areas after the Q2 2023 results-
CMP : 522
MCap : 7800(approx.)
Book value: 512 ( increased by around Rs.70 QOQ)
Loan Repayment during the quater is around 450 crores,
P/E ratio: 2.7(very much undervalued)
EPS: 196 ( 12 months trailing)
EPS for Q2 only: 79.95
This company is so undervalued compared to other OMCs, and to get a company with such a low pe in Indian equity market is really a very rare thing, if at all the company grows at the same pace or maintain its current profitability in no time it shall be debt free( in last around 18 months company as approximately repaid 5000 crores of borrowing which is a huge achievement for a company having market cap bearly of 7000 crores).

Please correct me if the information is wrongly shared and feel free to reply or feedback

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I am surprised there is no recent post on Chennai Petroleum. I am coming up with this stock in so many screens. It has again come up today in the low debt companies. Just to cite its data from the screen

Price today:, 610.95, PE: 3.15, Market cap: 9096.26, Div Yield: 4.42, NP Qtr :1190.56, Qr Profit variation %:4170.30 Sales Qtr:16544.56, Qtr sales variation: -15.19,*Profit var 5 years: 31.09, Debt/Eq: 0.45,ROCE: 45.5%ROE: 77.91%

Why share this data, when anybody can access it? When everything appears so hunky dory, one fears one is missing something.

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In auction driven markets we find such stocks where no more people are interested but the people who are interested does not want other people to know about it. CPCL is one of such companies in the markets where it is a asymmetrical bet which we get once in life time, the market is recognizing it now as the FII stake as gone upto to 11.37% still september and in october the stake as gone upto 15 to 16% (yet to be confirmed).

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I also came upon this in some of my screeners. But it seems that the fortunes have recently improved due to russia-ukraine oil crisis. The following article may be of help:

https://www.valueresearchonline.com/stories/54039/why-oil-refineries-are-suddenly-flying-high/

PS. Not invested
PPS: my first post on valuepikr - where I’ve mostly been a lurker :slight_smile:

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while analysing the ten years profile in Annual report two things we need to consider other than the gross refining margins.

  1. Based on crude oil price, raw material cost as a % of turnover varies from 66 to 88%.
  2. Excise duty as a % of turnover varies from 8.5% to 46%.