Accumulate Chennai Petroleum; target of Rs 485: Kotak Securities

Kotak Securities' research report on Chennai Petroleum

Chennai petroleum has reported better than expected performance. CPCL’s Q2FY18 PAT increased significantly by 846% qoq (partly base effect) to Rs.3.2 bn (+221% yoy) reflecting significantly higher refining margins, higher sales volume and lower raw material cost. CPCL has reported higher throughput of 2.64 mmt (2% qoq), resulting in 87% capacity utilization in Q2FY18. The company has reported higher GRMs of US$5.67/bbls in H1FY18 v/s US$ 3.81/bbls in Q1FY18.

Outlook

We expect CPCL to report an EPS of Rs.58.7/share in FY18E and an EPS of Rs.74.5 in FY19E supported by higher refining margins, lower operating cost, higher other income and higher crude throughput. At CMP, we believe that the stock is close to fairly valued at a PE of 6.2x FY19E earnings. Due to limit upside, we maintain ACCUMULATE on the stock with a revised price target of Rs.485. We have valued CPCL based on PE multiple of 6.5x FY19 (target PE), which is at a significant discount to its peers considering its lower complexity and wide fluctuation in earnings.