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  • Stock Recommendation: Chennai Petroleum Corporation Ltd – BUY – TP Rs.373

    Publish Date: 31st July, 2018

    Result Update

    Despite ~5% qoq rupee depreciation and significant jump in GRMs, CPCL's revenue decreased marginally due to decline in crude throughput. Operating profit jumped meaningfully due to lower operating cost. Recently commissioned project will improve the earnings in FY19E and weaker currency will be further positive. Major capex plans lined up will boost its long term profitability, we opine. 

    Key Highlights

    • CPCL's Q1FY19 results is broadly in line with our estimates. The company has reported a PAT of Rs.1.56 bn  against our expectation of Rs.1.53 bn.
    • CPCL reported significantly higher GRMs of US$7.11/bbl as against US$5.8/bbl in Q4FY18 partly due to inventory gain, we opine.
    • In FY19, the company will be investing Rs. 10 bn out of the total investment planned of Rs.25.4bn on its ongoing projects which will improve reliability, profitability and meet product quality specification.

    Valuation & outlook

    We expect CPCL to report an EPS of Rs.64.2/share in FY19E and an EPS of Rs.67.7 in FY20E supported by better distillate yields, weaker INR/USD and higher crude through put. At CMP, we believe that the stock is attractively valued at a PE of 4.7x FY20E earnings. We maintain BUY recommendation on the stock with an unchanged price target of Rs.373/share. We have valued CPCL based on PE multiple of 5.5x FY20 (target PE), which is at a significant discount to its peers.


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