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Performance picks up, but falls short of expectations

Chennai Petroleum’s Q3FY25 core performance witnessed recovery but failed to meet expectations, EBITDA was at Rs 2.4bn; USD4.3/bbl of reported GRM (our est. of positive USD4.7) on shutdown and inventory losses. As per our calculations, there is an inventory loss which could be at USD0.7/bbl and Rs 726mn forex loss during the quarter. As per our calculations, the core GRMs could be at USD 5/bbl which is at par with the benchmark. We maintain BUY rating, with a revised TP of Rs1,000.

Result Highlights

* EBITDA/PAT at Rs bn 2.4/0.11 (vs Rs bn 7.1/3.9 in Q3FY24 and negative 6.7/6.3 in Q2FY25). The performance is weaker than our estimate of Rs bn of 2.6/0.53, while the consensus was at Rs bn 2.6/0.65. GRMs were marginally impacted by shutdown of one of the phases of refinery and secondary units for 15 days in Oct’24, the change in inventory in the system also impacted the GRMs.

* CPCL’s Q3FY25 reported GRM was at ~USD 4.3/bbl (negative USD 1.6 the quarter prior, USD 6.2 a year ago) while the Arab heavy-light difference was USD 1.9/bbl (1.3 in the prior quarter). There was no RTP reduction impact, while as per our assumption, there could be an inventory loss of USD0.7/bbl which means that the core GRMs were in line to the Singapore GRMs and could be at ~USD5/bbl.

* Refinery throughput was 2.55mmt at ~96% utilization (79% in the prior quarter, 107% a year ago) was in line with our expectations. Of the three refinery phases, one of them had a shutdown for 15 days in Oct’24 which impacted the plant utilization. The secondary units – FCCU, DCU were also under shutdown which impacted the GRMs at large, if we normalize the same then core GRMs could be above USD5.5/bbl.

* Opex: At USD 2.6/bbl opex is near the trailing 8-quarter average of USD2.8/bbl as the plant utilization was lower in Oct’24. RLNG consumption during the quarter was ~1.1mmscmd, marginally higher than the previous quarter. There was a forex loss this quarter which impacted the earning, as per our calculations it could be amounting to Rs 726mn.

* Sequentially, the debt decreased by Rs 3.7bn to Rs 56.9bn (vs peak of Rs104bn) and by Rs 9.1bn YoY on a recovery in GRMs. The company expects a Rs 45bn of normal debt levels. Capex for quarter was ~Rs 3bn, (Rs 6.57bn in 9MFY25) while FY25 target is revised to Rs 7.5bn.

* Crude Sourcing mix: Indigenous contributed 15%, 15% Saudi, 25% Iraq, Russia 20%, and rest 25% on Spot from other countries. The Russian crude discounts were lower (USD2/bbl) and so the sourcing is decreasing and moving to spot purchases. In terms of the slate mix, the diesel contribution to the slate was ~45%, gasoline ~11%, ATF ~8% and lubes ~2%, fuel & loss 9%. The diesel spreads were more impacted due to shutdowns and inventory changes.

* 9MFY25 performance: EBITDA at Rs 2.3bn (vs a of Rs 34.6bn in previous period) while PAT loss at Rs 2.8bn (vs a profit of Rs 21.3bn in previous period) and the reported GRM at USD3.4/bbl (vs USD9). The FCF is at negative Rs 4.8bn (vs a positive Rs 21.3bn in previous period) on weaker GRMs and plant shutdowns.

Stock performance

Valuation

High GRM sensitivity: a USD1/bbl change in GRM changes EBITDA by Rs 7.1bn. Declared dividend of Rs 55/share in FY24 (9.4% dividend yield on CMP), 0.4/5.4/3.6% FY25e/26e/27e, would be key for shareholders. The BV/share for FY25e/26e/27e: Rs 582/659/709, debt on books is towards working capital requirements. At CMP, the stock trades at 11.8x/3.5x/4.3x FY25e/26e/27e EV/EBITDA and 1x/0.9x/0.8x P/BV. We maintain BUY rating, with a revised 12-mth TP of Rs1,000, valuing the stock at 7x FY27e EV/EBITDA (earlier TP Rs 1,100).

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