A foreign exchange loss—of about Rs330 core for the December quarter due to a sharp fall of the rupee against the dollar—adversely affected the financial performance of Chennai Petroleum Corp. Ltd (CPCL) for the quarter.
That’s an important reason for the company reporting a net loss of Rs63 crore against net profit of Rs155 crore in the same period last year. Even as the company posted an operating profit, which was 82% lower year-on-year, higher interest expenses (due to an increase in cost of funds) and depreciation costs played spoilsport at the net level.
While it’s true that Chennai Petroleum’s reported gross refining margin (GRM), a key measure of profitability, has improved sequentially, it is lower year-on-year. GRM for the December quarter stood at $3.36 a barrel compared with $5.33 per barrel in the same period last year and $0.26 per barrel in the September quarter. The firm’s GRM had fallen considerably in the September quarter due to forex loss, logistical issues at Chennai port and power supply problems.
So far in this fiscal, the stock has declined by 24% compared with the 9.5% decline in the benchmark Sensex index of BSE. However, the company has a strong dividend history.
“CPCL has strong dividend payout ratio in the range of 35-40% for the last six years (except fiscal 2009, when they had loss and dividend was zero),” pointed out analysts from PINC Research in a report in December. They expect the high dividend trend to continue, but perhaps with an exception in the current fiscal. Its probably because it has, so far, for the nine months ended December, posted a net loss of Rs45 crore.
To be sure, refining margins have improved substantially from the low seen in the December quarter. If the trend in GRM continues for the whole of the current quarter, then it would generally augur well for companies in the space.
Also, the company will benefit if the current trend in rupee appreciation continues during the quarter. But the firm is facing delays (awaiting environmental clearance) on a expansion project and any upside in the stock is likely to be limited in the near future.