Chennai Petro Q2: Total Debt Jumps 2.2x Since FY24 | NDTV Profit

Summary

In a recent discussion, Ash Shankar, Managing Director of Chennai Petroleum Corporation, addressed the challenges facing the company amid fluctuating crude prices and stagnant crack margins. Despite a tough Q2, Shankar expressed optimism for the second half of the year, citing improved operational efficiency and production capabilities. He highlighted ongoing projects, including a new refinery in Nagapattinam, and discussed the company's strategy to manage rising debt through enhanced throughput and revenue growth. As the market grapples with broader economic pressures, Shankar remains confident in navigating these tough times while ensuring the company's resilience.

Takeaways

• 😀 Chennai Petroleum Corporation Limited (CPCL) faced significant challenges in Q2 due to volatile crude prices, affecting its gross refining margins (GRMs).
• 📉 The crude prices fluctuated between $74 to $84 per barrel, with a notable decline impacting the company's profitability.
• 🔍 Crack prices for diesel and aviation fuel remained low, averaging around $8 to $10 for diesel and $5 for motor spirit (MS), indicating a tough market environment.
• ⚙️ Operational efficiency was highlighted as a crucial area for improvement, particularly following maintenance shutdowns intended to enhance plant reliability.
• 📈 Despite a challenging Q2, there is optimism for Q3 and Q4, with expectations of better financial results due to improved operational metrics.
• 🏭 CPCL, in partnership with Indian Oil Corporation, is advancing plans for a new 9 million metric ton refinery in Nagapattinam, with 10% of pre-engineering work completed.
• 📊 The company reported a throughput of over 2 million metric tons in Q2, with a target to achieve over 100% capacity utilization in the second half of FY25.
• 💰 Increased debt in the first half of FY25 was acknowledged, attributed to low operational performance; plans are in place to reduce debt by INR 1,500 to 2,000 crores in upcoming quarters.
• 🔄 The strategy involves maximizing value-added products to enhance overall profitability despite current market conditions.
• 🤝 Shankar reassured stakeholders that the company is actively working on improving its financial health and operational performance moving forward.

Q & A

What are the main challenges faced by Chennai Petroleum in Q2?

Chennai Petroleum faced significant challenges in Q2 due to volatile crude prices, which fluctuated between $84 and $74, and stagnant crack prices, particularly with diesel and ATF, which were in the single-digit range.

How did the company's operational efficiency impact its performance?

Despite the tough conditions in Q2, the company focused on improving operational efficiency through maintenance work. This is expected to lead to a robust performance in Q3 and Q4.

What are the expectations for Chennai Petroleum's performance in the second half of the fiscal year?

The company anticipates better results in the second half of the fiscal year, expecting improvements in crack prices and operational efficiency to positively impact revenue.

What was the throughput for Chennai Petroleum in Q2 and how does it compare to previous performance?

In Q2, Chennai Petroleum achieved a throughput of over 2 million metric tons, with a capacity utilization of 94% for H1. This is down from over 100% in the previous year due to shutdowns.

What is the company's strategy regarding crude sourcing, particularly with Russian crude?

Chennai Petroleum is currently sourcing Russian crude with discounts around $1 to $1.5 per barrel. The company uses a mix of term and spot crude, ensuring it has access to opportunity crudes as needed.

What progress has been made on the new refinery project in Nagapattinam?

The company, along with Indian Oil Corporation, is planning a 9 million metric ton refinery at Nagapattinam, with 10% of pre-engineering work completed and pending final government approvals for capital infusion.

How has Chennai Petroleum's debt changed in the first half of the fiscal year?

Chennai Petroleum's debt increased to over 6,000 crores in the first half of FY25, compared to 2,000 crores a year ago, primarily due to low operating scenarios.

What measures are being taken to manage and reduce the company's debt?

The company plans to improve production capabilities and ramp up throughput to increase revenue, which will help in reducing the debt by approximately 1,500 to 2,000 crores in the upcoming quarter.

What is the significance of operational efficiency for Chennai Petroleum?

Operational efficiency is crucial for Chennai Petroleum as it allows the company to maintain reliability and productivity even during challenging market conditions, ultimately impacting profitability.

What insights did Ash Shankar provide about the overall market conditions?

Ash Shankar noted that the challenges faced by Chennai Petroleum are not isolated, as many companies globally are experiencing similar difficulties due to volatile market conditions.