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Our View 

Chennai Petroleum’s Q1FY25 core performance was weaker than our expectations at USD5.2/bbl, with an EBITDA of Rs 6.6bn; USD6.33/bbl of reported GRM (our est. USD6) on narrowing Russian crude discounts. As per our calculations, there is an inventory loss which could be at USD1.13/bbl with no forex impact during the quarter. As per our calculations, the core GRMs could be at USD 5.2/bbl. Spot Russian crude sourcing moved up contributing 40% as it was available cheap compared to other supplies. We maintain BUY rating, with an unchanged 12-mth TP of Rs1,450.

Result Highlights 

*  EBITDA/PAT at Rs bn 6.6/3.4 (down 30%/37.5% YoY and 36.3%/44.1% QoQ). The performance is in line with our estimates and lower than the consensus.

*  CPCL’s Q1FY25 reported GRM was USD 6.33/bbl (USD 7.7 the quarter prior, USD 8.33 a year ago) while the Arab heavy-light difference was USD 1.5/bbl (1.8 in the prior quarter). There was no RTP reduction impact, while as per our assumption, there could be an inventory gain of USD1.13/bbl which means that the core GRMs could be at ~USD5.2/bbl.

*  Refinery throughput was 2.83mmt at ~107% utilization (117% in the prior quarter, 112% a year ago). Opex: At USD 2.7/bbl opex is at the trailing 8-quarter average. Forex impact: There was no forex impact during this quarter.

*  Sequentially, the debt increased by Rs 16.3bn to Rs 43.8bn (vs peak of Rs104bn) and decreased by Rs15bn on YoY basis on strong cashflow generation, while the FCF was at Rs 3.8bn. The company expects a Rs 30bn of normal debt levels.

*  Capex for qtr was Rs 1.2bn and FY25 is targeted at Rs 5bn.  

*  Crude Sourcing mix: Indigenous contributed 15%, 15% Saudi, 25% Iraq, Russia 40%, and rest 5% on Spot from other countries. The Russian crude imports increased by 10% sequentially mainly bought on spot basis as it was cheaper over other suppliers. The Russian crude discounts were lower (USD2-3/bbl) as the system for booking of crude price changed from earlier delivery to the Indian port to Russian port dispatch. It takes ~30days for crude to reach Indian port when left Russian port.

*  In terms of the slate mix, the diesel contribution to the slate was ~45%, gasoline ~11%, ATF ~8% and lubes ~2%, fuel & loss 8.5%. 

Valuation 

High GRM sensitivity: a USD1/bbl change in GRM changes EBITDA by Rs 7bn. Declared dividend of Rs 55/share in FY24 (5.4% dividend yield), 3.6/3% FY25e/26e, would be key for shareholders. The BV/share for FY25e/26e: Rs 663/734, debt on books is towards working capital requirements. At CMP, the stock trades at 3.4x/3.8x FY25e/26e EV/EBITDA and 1.5x/1.4x P/BV. We maintain BUY rating, with an unchanged 12-mth TP of Rs1,450, valuing the stock at 7.4x FY26e EV/EBITDA.

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