Citi Group has raised Chennai Petroleum Corporation's FYOS-09 estimates by 19-2 5%
New Delhi   16-Jul-2007
Citi Group has raised Chennai Petroleum Corporation (CPCL)'sFYOS-09 estimates by 19-2 5 % on the back of sustained strength in the refining crude and reduced subsidy burden. Dividend yield of 5.6% provides downside support. The company reported PAT of Rs 323 crore (EPS Rs 21.7) during the quarter, which was slightly higher than expected due to strong gross refining margins (GRM). Reported GRM of S8.8/bbl was in line with Singapore complex GRM of S9.6/bbl. Adjusting for subsidy payouts. CPCL has broadly tracked Singapore GRMs, apart from certain one-off quarters. New estimates are based on GRMs of S6.5/bbl in FYOSE and $6.0/bl in FY09E, though gains are partially offset by a stronger rupee. Citigroup does not expect pure refiners to be induced in the subsidy net as duty protection has fallen to 1 % and a major contribution from RIL's refinery is unlikely, given its EOU status. Replacement cost analysis suggests further hidden value. On a conservative EV complexity bbl of $ 1500 (against replacement cost of $2,000 and RIL/RPL's current multiples of $1,900-2,200), CPCL could be worth Rs490. The steep discount to replacement cost offsets the risks from a potential merger with IOC.