The global refining outlook has improved in the past few quarters and that is reflected in the better gross refining margins (GRMs) that firms are reporting. Financial results of Chennai Petroleum Corp. Ltd for the quarter ended December show that GRMs have increased to $5.33 (Rs243 today) per barrel compared with $3.44 per barrel in the same period last year.
Also See | Margin impact (Graphic)
GRM for the September and June quarters stood at $4.10 per barrel and $1.8 per barrel, respectively. But the reported GRMs include the impact of an inventory gain of Rs150 crore against an inventory gain of Rs50 crore in the December 2009 quarter. “Excluding the inventory impact, the core GRMs averaged $3.7 per barrel, compared with $2.9 per barrel in 3Q FY10 and $4.38 per barrel in 2Q FY11,” wrote analysts from Alchemy Share and Stock Brokers Pvt. Ltd in their post-results note.
Singapore GRMs have averaged at $5.5 per barrel in the December quarter compared with $4.2 per barrel in the September quarter. So why did Chennai Petroleum’s core GRMs drop on a quarter-on-quarter basis? The sequential decline in core GRMs is because of the fact that some of the secondary production units were not operating due to maintenance shutdown, said Alchemy’s Jagdish Meghnani.
Meanwhile, revenue growth of 22% has disappointed some analysts. The company’s capacity utilization for the quarter stood at 97.4%, slightly higher than the September quarter. A sharp decline in other income led to relatively slower growth in the profit before tax, which more than doubled to Rs232 crore.
Chennai Petroleum’s stock has underperformed the BSE-500 index since the beginning of the fiscal. The underperformance does make the firm’s stock valuations attractive. Analysts expect better utilizations and an improved refining environment to reflect in the financials going forward. In keeping with that, the March quarter is expected to be robust. Though, if the refining recovery story does not sustain for long, that could be a cause of concern for all refining companies in general.
Graphic by Yogesh Kumar/Mint
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