Buy Chennai Petroleum Corporation; target of Rs 314: Kotak Securities
Kotak Securities is bullish on Chennai Petroleum Corporation has recommended buy rating on the stock with a target price of Rs 314 in its research report dated January 04, 2019.
January 07, 2019 / 03:37 PM IST
Kotak Securities' research report on Chennai Petroleum Corporation
Margin under pressure: Benchmark Singapore refining margin has declined ~10% qoq to US$ 5.4/bbl (average) and is currently trading around US$ 3/bbl due to weak global product demand. Petrol spread has declined meaningfully by 50% qoq to US$4.1/bbl in Q3FY19. In H1FY19, CPCL's average GRMs stood at US$ 5.98/bbl. CPCL is a standalone, simple refiner and hence it has a very high earning sensitivity to GRMs. We expect the company to report lower GRMs in Q3FY19. Lower production: Planned maintenance will led to lower crude throughput in Q3FY19 impacting near term earnings. From Oct'18, CPCL has shut a 74,000 bbl/d crude unit at its 210,000 bbl/d Manali refinery for one month for maintenance. The impact of the same will be visible in Q3FY19.
At CMP, we believe that the stock is attractively valued at a PE of 4.5x FY20E earnings. We maintain BUY recommendation on the stock with a revised price target of Rs.314/share (earlier Rs.337/share). We have valued CPCL based on PE multiple of 5x FY20, which is at a significant discount to its peers as it is a standalone and relatively simple refinery resulting in higher earnings sensitivity.
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