Result Update: Chennai Petroleum Corporation Ltd - BUY - TP Rs.373 - Kotak

Higher raw material/operating cost, lower GRMs, higher depreciation charge and lower other income impacted CPCL's Q4FY18 performance. However, recently commissioned project will improve its earnings in FY19E and weaker currency will be positive for all refining companies. Major capex plans lined up which will support its long term growth, we opine. The company has declared a dividend of Rs.18.5/share for FY18.

Key Highlights

In H2FY18, CPCL commissioned 2.2 mmtpa delayed coker unit which will increase its throughput of valuable distillate products. Additionally it has commissioned new cooling tower, Sulphur recovery unit, Sour water stripper, Amine regeneration unit, and OMRO plant. In Feb'18, it has commissioned OHOS revamp project. CPCL also started marketing Petroleum Coke to nearby customers. We believe the full benefit of the same will be reflected in FY19E and onwards.

Valuation & outlook

We expect CPCL to report an EPS of Rs.66.7/share (earlier Rs. 68.2/share) in FY19E and an EPS of Rs.67.7 (earlier Rs.71/share) in FY20E supported by better distillate yields, weaker INR/USD and higher crude throughput. At CMP, we believe that the stock is attractively valued at a PE of 4.3x FY20E earnings. With the recent correction in the stock price, we recommend BUY on the stock with a revised price target of Rs.373/share (earlier Rs.390). We have valued CPCL based on PE multiple of 5.5x FY20 (target PE), which is at a significant discount to its peers given its size and complexity. Recently, commissioned project will improve its earnings in FY19E.

Shares of CHENNAI PETROLEUM CORPORATION LTD. was last trading in BSE at Rs.299.35 as compared to the previous close of Rs. 297.25. The total number of shares traded during the day was 38129 in over 734 trades.

The stock hit an intraday high of Rs. 300.75 and intraday low of 290.7. The net turnover during the day was Rs. 11318016.

Source : Equity Bulls

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