Chennai Petroleum Corporation Ltd Date:
July 2017
Symbol: NSE: CHENNPETRO, BSE: 500110
Industry: Refineries/ Petro-Products
CMP: 364.5
Target: 100%
Stop Loss: No Stop loss
Time Period: 2-3 Years
Book Value: 223.30
Face Value: 10.00
Brief About Company:
Chennai
Petroleum Corporation Limited (CPCL), formerly known as Madras Refineries
Limited (MRL) was formed as a joint venture in 1965 between the Government of
India (GOI), AMOCO and National Iranian Oil Company (NIOC) having a share
holding in the ratio 74%, 13% and 13% respectively.
From the grassroots stage, CPCL refinery was set up with an installed capacity of 2.5 million tonnes per annum (MMTPA) in a record time of 27 months at a cost of Rs 43 crore without any time or cost over run.
In 1985, AMOCO disinvested its stake in favour of the GOI and the shareholding percentage of GOI and NIOC stood revised at 84.62% and 15.38% respectively. Later GOI disinvested 16.92% of the paid up capital in favour of Unit Trust of India, mutual funds, insurance companies and banks on 19th May 1992, thereby reducing its holding to 67.7%.
From the grassroots stage, CPCL refinery was set up with an installed capacity of 2.5 million tonnes per annum (MMTPA) in a record time of 27 months at a cost of Rs 43 crore without any time or cost over run.
In 1985, AMOCO disinvested its stake in favour of the GOI and the shareholding percentage of GOI and NIOC stood revised at 84.62% and 15.38% respectively. Later GOI disinvested 16.92% of the paid up capital in favour of Unit Trust of India, mutual funds, insurance companies and banks on 19th May 1992, thereby reducing its holding to 67.7%.
The public issue of CPCL shares at a premium of Rs 70 (Rs 90 to FIIs) in 1994 was over subscribed to an extent of 27 times and added a large shareholder base of over 90,000. As a part of the restructuring steps taken up by the Government of India, Indian Oil Corporation acquired equity from GOI in 2000-01.
Currently IOC holds 51.88% while NIOC continued its holding at 15.40%.
CPCL has two refineries with a combined refining capacity of 10.5 Million Tonnes Per Annum (MMTPA). The Manali Refinery has a capacity of 9.5 MMTPA and is one of the most complex refineries in India with fuel, lube, wax and petrochemical feedstock production facilities.
The company's second refinery is located in the Cauvery Basin at Nagapattinam. The initial unit was set up with a capacity of 0.5 MMTPA in 1993 and later on its capacity was enhanced to 1.0 MMTPA.
The commissioning of the 3 MMTPA expansion cum modernization project enabled CPCL to meet the auto fuel quality norms of Bharat Stage II & Euro III equivalent.
Products:
The main products of the company are LPG, motor spirit, superior kerosene, aviation turbine fuel, high speed diesel, naphtha, bitumen, lube base stocks, paraffin wax, fuel oil, hexane and petrochemical feed stocks.
The wax plant at CPCL has an installed capacity of 30,000 tonnes per annum, which is designed to produce paraffin wax for manufacture of candle wax, waterproof formulations and match wax. A propylene plant with a capacity of 17,000 tonnes per annum was commissioned in 1988 to supply petrochemical feedstock to neighboring downstream industries.
The unit was revamped to enhance the propylene production capacity to 30,000 tonnes per annum in 2004. CPCL also supplies LABFS to a downstream unit for manufacture of Liner Alkyl Benzene.
The company exported Lube Oil Base Stock (LOBS) for the first time to Sri Lanka for commissioning the Lube Blending Plant of Lanka IOC during the year 2007-08. The board of directors has recommended a dividend of 170% on the paid up capital and thereby maintained the uninterrupted payment of dividends for the past thirty five years, from the third year of its operations.
In 2010 CPCL CBR bagged ''Award for TPM Excellence, category A'' indicating that TPM is implemented for all the 8 pillars excellently in entire CBR by JAPAN Institute of Plant Maintenance (JIPM) during January 28, 2010
The
last point is underlined because for the people who don’t know the TPM, its
best in class practice for any manufacturing industry. The Achievement of TPM
is only possible for the so organized and structured companies, in which CPCL
achieved in 2010 itself. I am a fan of TPM.
Bullet Points: (All
financials are based on TTM data,
Last 4 Quarters)
Positive:
1. Stock
is trading at attractive P/E of 5.2,
lowest among peers and historically
2. Promoters
Holding 67% with Zero pledged shares
3. Revenue
is approx. 6 times to Market Cap. 30,350 to the 5,365
4. ROE
is above 38% highest among peers.
5. Price
/ book is at 1.61, median among
peers
6. Sales
YoY 7%
7. Operating
Profit YoY 40%
8. Operating
margin % OPM 7% (Highest
historically)
9. PAT
growth 34% YoY
10. Other
income and Interest reduced by 10% YoY
11. Net
Profit Margin (NPM%) at 4% highest
historically
12. Cash
from Operating Activity increased by 110%
YoY
13. Capital
Work in Progress (CWIP) increased by 110%
YoY
14. Total
debt reduced by 30% YoY
15. Market
Cap increased 50% YoY
16. Reserves
increase by 40% YoY
17. Earnings
Yield above 12%
18. EPS
at 69 vs. 51 last year with EPS growth
35%
19. PEG
attractive at 0.38
Negative:
1. Sales
Growth 3 Years at -15% , 5 Years@-5%, 10 Years@1%
2. Operating
Margin 3 Years at 1% , 5 Years@1%, 10 Years@2%
3. PAT
Growth 3 Years at 1-176% , 5 Years@9%, 10 Years 4%
4. Tax
@ 25% to the Profit before Tax (PBT)
5. Debt
although reducing but its 3 times to Yearly PAT
6. Historical
YoY performance Inconsistent
7. QoQ
performance Inconsistent , Q4 PAT 170, Q3 291, Q2 98, Q1 469.8
8. QoQ
PAT down -63%
9. Net
cash flow in Low
10. Not
paying Dividend regularly
Synopsis on Bullet points:
Considering the above
Positive and Negative points, It’s clear that the company has outperformed from
its previous year 2015-16 but the growth is Inconsistent from past years say 3
years or five years.
If the financial
performance continues as like the same way before its definitely a MULTIBAGGER because of its lowest
valuations but as seen the inconsistency, we believe that the company will be
performed consistently here after and we believe that the Revenue will be
Increased YoY for at least next 3 Years.
Let’s see the reasons for our belief:
Point:1 Capital
infusion by IOCL
A brief from annual report
The result is
And what’s IOCL opinion on CPCL
So on a Clear Context, IOCL
infused huge capital (Rs. 1,000 Crore) in to CPCL and also in coordination for
the process and performance improvements.
We seen the difference also above
and we expect the same support from IOCl in future also as it got the Excellent
rank in MOU from the DPE for the previous years.
Point:2 Institutions
and Mutual Fund Houses Holding
All are Grade A Institutions/
companies and holdings are huge and moreover small fund houses starting buying
on QoQ basis.
Point:3 Completed
Projects:
So the Outperformance of TTM is
due to the operational of above two projects and also we can expect the higher
revenues from these projects. Also new products added to the production line
which is an added advantage
Point:3 CWIP
(Capital Work in Progress)
The company is so aggressive on
capital and assets expansion from last four year CWIP grown at approx
unbelievable of 1000% and the
capital increasing 100% YoY from
last 3 years and importantly with the Reduction
of Debt. So that means the company is effectively using the Cash without
burdening the balance sheet by Long Term Debts. The ongoing projects are
So all four ongoing projects are
expected to complete on March-2017 as per the last annual report that means
these projects will be operational from these quarter Jun/Sep-2017 and a big
plus to Future Revenues
Point:4 Upcoming Projects:
The desire of Capital expansion
is not ends here as the company is looking forward for more projects.
Point:5 New Patents and Research and Development
(R&D):
Point:6 Company +’s:
1.
Cauvery Basin Refinery bagged best safety practices award 2015
2.
Decent Energy Consumption measures
3.
No major observations in Audits of 2015-2016
4.
Certified of ISO and TPM
5.
New Technology absorptions and New product developments
OPPORTUNITIES:
1.
High Demand of petroleum products in India
2.
New products and projects
3.
Sustainable developments in Operational activities with the
coordination of IOCL
4.
Energy conserve measures will yield long-term profit abilities
5.
Feasibility study for Solar project of 5 MW which in turn saves energy
cost
6.
Low Crude Oil prices
RISKS and CONCERNS:
1.
As the total company’s raw material is Crude oil and major portion is
imported from Gulf, Any disruption in supply will lead to economic
instabilities
2.
Future observation of Govt. tax on imports may change the dynamics
3.
As refinery Units are highly sensitive, although CPCL using best safety
practices but a major accident can disrupt the whole structure
4.
As per govt. policy, all the refineries need to produce the BS-IV
specified auto fuels by April 2020, Although the CPCL is ramping up for the
facilities but it may absorb the investments up to Rs. 1000 Crore
5.
Withdrawal of IOCL investment at anytime will make a major impact
FINAL NOTE:
With all the considerations we believe that Chennai
Petro can be a Potential Multi Bagger with the time Horizon of 2-3 Years and
can be added in every dips and one must keep track of QoQ financial statements
and overall industry policies and performances.
Disclaimer:
We are not involved with any type of dealing with
Chennai Petroleum Corporation limited and neither with belonging employees and
all the report made with personal interest and usage.
Sources Used:
1.
Annual Report 2015-2016
2.
Screener.in
3.
Valuereaserchonline.com
4.
Trendlyne.com
5.
Bseindia.com
6.
Moneycontrol.com
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