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Friday, October 30, 2009

Chennai Petroleum Corporation Ltd:Future growth outlook and prospects

Scripscan:Chennai Petroleum Corporation Ltd

Story:Chennai Petroleum has got two refineries with a total capacity of about 10.5 million tonne per annum. Historically, this company has been making good profits with FY08 profits at about Rs 1,100 crore and paid a dividend of 170%. However, for FY09 the company has made a loss of Rs 400 crore; this is primarily on account of a loss of about Rs 1,200 crore which it incurred in October to December quarter mainly on account of inventory losses and the crash in the refining margins of the company due to crash in the oil prices. But I believe that is now history.This company has done Rs 275 crore of profit in the quarter ended March and the refining margins have gone up 400% to USD 6.6 as against USD 1.22 per bbl for the previous nine months and given the recovery in oil prices, I think refining margins are going to remain good for the company. Unlike HPCL and BPCL this company does not depend upon subsidy from the government, it can sell its products under the market determined prices. So given all those factors, I think the company can comeback to the list of companies, it use to make a profit of over Rs 1,000 crore. The stock has been beaten down mainly on account of the fact that FY09 loss has been Rs 400 crore but that was only on account of the loss for one quarter. Going forward I expect this company to report good numbers and the worst seems to be over for the stock as of now.This stock has got very little downside. Generally what happens is this kind of stocks – markets are not convinced with one quarter of profits, so on a sustainable basis if this company is able to show profits, which I believe it will because oil prices have gone up in this quarter. I think for June quarter and coming quarters the profits should be better than that in the March quarter. Markets buy only when they see the actual result. So the smart people make money when there are concerns about the stock and when the stock prices are low.A good safe buy.

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