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Kotak Securities
CMP: ₹169.25
Target: ₹189
Chennai Petroleum Corporation’s (CPCL) annual report highlights key initiatives planned to support future growth such as refinery upgradation and capacity expansion. It also updates about the status of new crude oil pipeline and RLNG project. In order to upgrade its technology, meet BS-VI norms and cater to the rising fuel demand, CPCL plans a new 9 mmtpa refinery along with a polypropylene facility. Once this project is completed, the total nameplate refining capacity will increase to 19.5 mmtpa from current 10.5 mmtpa to 19.5 mmtpa.
From April 1, 2020, all Indian refineries need to meet BS-VI quality norms for supply of diesel and petrol. Accordingly, the company is revamping its existing Manali refinery. In the process, it is also increasing its refining capacity along with a new sulphur recovery unit and installing a FCC gasoline desulphurisation unit. The total investment estimated is ₹1,860 crore and expected to be completed by December 2019.
CPCL had commissioned its residue upgradation project where it had invested ₹3,110 crore.
We expect CPCL to report an EPS of ₹7.9 in FY20E and ₹37.9 in FY21E supported by better distillate yields and higher crude throughput. We believe that the stock is attractively valued at 4.5x EV/EBIDTA and 4.3x PE on FY21E.
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