Sell Chennai Petroleum; target of Rs 85: Kotak Securities

Kotak Securities' report on Chennai Petroleum Corporation

"In Q2FY15, CPCL reported lower than expected performance. It has reported a net loss of Rs. 2.33 Bn as against a net profit of Rs. 5.1 Bn in Q1FY15 mainly on account of lower crude throughput, lower product prices, forex loss and higher operating cost. The Company has reported an average GRM of US$ 2.37/bbls in Q2FY15, up by 26.1% QoQ but down by ~66% YoY. In Q2FY15, CPCL reported a throughput of 2.54 Mn MT, down by 9.8% QoQ, resulting in 84.1% capacity utilization (93.2% in Q1FY15)."

"At current price of Rs. 95, the stock is trading at 4.2x P/E and 7.0x EV/EBITDA multiples on FY16E earnings. Post our previous BUY recommendation, the stock has given excellent returns. However, we now believe most of the positives are priced in. We value CPCL using EV/EBIDTA multiple and arrive at a price target of Rs.85/Share (earlier Rs.102). We expect refining margins to improve post completion of residue up-gradation project", says Kotak Securities research report.

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