Chennai Petroleum Corporation Ltd:Annual Report 2023-24 Analysis

Chennai Petroleum Corporation Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Chennai Petroleum Corporation Limited (CPCL), formerly known as Madras Refineries Limited (MRL), was established in 1965 as a joint venture between the Government of India (GOI), AMOCO India Inc., USA, and National Iranian Oil Company (NIOC). Commercial production commenced in 1969.

Headquarters Location and Global Presence:

• Headquarters: Chennai, Tamil Nadu, India.
• CPCL primarily operates within India.

Company Vision and Mission:

• Vision: To be a premier refining and petrochemical company providing sustainable energy solutions, creating value for stakeholders, and contributing to national growth.
• Mission: To operate refineries efficiently and reliably, producing high-quality petroleum products and petrochemicals, while ensuring safety, environmental protection, and social responsibility.

Key Milestones in Their Growth Journey:

• 1965: Incorporation of Madras Refineries Limited (MRL).
• 1969: Commencement of commercial production with a refining capacity of 2.5 Million Metric Tonnes Per Annum (MMTPA).
• 1985: Expansion of refining capacity to 5.6 MMTPA.
• 1991: Commissioning of the second refinery with a capacity of 3 MMTPA.
• 1994: Change of name to Chennai Petroleum Corporation Limited (CPCL).
• 2001: CPCL became a group company of Indian Oil Corporation Limited (IOCL).
• 2004: Expansion of Manali Refinery to 9.5 MMTPA.

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange of India (NSE) & Bombay Stock Exchange (BSE).
• Note: Market Capitalization data is dynamic and should be checked on financial websites like NSE/BSE.

Recent Financial Performance Highlights:

Note: Specific financial data is dynamic and can be obtained from CPCL’s official website, annual reports, and financial news sources.

Management Team and Leadership Structure:

• Information on current management and leadership structure can be found on CPCL’s official website.

Their Products #

Complete Product Portfolio with Categories:

• Fuel Products: Petrol, Diesel, Aviation Turbine Fuel (ATF), Kerosene, Naphtha.
• Petrochemical Feedstocks: Propylene.
• Others: Lube Oil Base Stocks (LOBS), Sulphur, Bitumen.

Manufacturing Facilities and Production Capacity:

• Manali Refinery (Chennai): 9.5 MMTPA
• Cauvery Basin Refinery (Nagapattinam): 1.0 MMTPA

Quality Certifications and Standards:

• CPCL’s refineries are certified with ISO 9001 (Quality Management System), ISO 14001 (Environmental Management System), and ISO 45001 (Occupational Health and Safety Management System) certifications.

Primary Customers #

Target Industries and Sectors:

• Automotive
• Aviation
• Power Generation
• Petrochemicals
• Infrastructure
• Agriculture

Geographic Markets (Domestic vs. International):

• Primarily focused on the domestic Indian market.

Major Client Segments:

• Industrial
• Commercial
• Retail

Distribution Network and Sales Channels:

• CPCL primarily supplies its products to Indian Oil Corporation Limited (IOCL), which handles further distribution and marketing.

Major Competitors #

Direct Competitors in India and Globally:

• Reliance Industries Limited (RIL)
• Bharat Petroleum Corporation Limited (BPCL)
• Hindustan Petroleum Corporation Limited (HPCL)
• Mangalore Refinery and Petrochemicals Limited (MRPL)

Comparative Market Share Analysis:

Market share data is dynamic and dependent on production, sales and demand. Recent report from credible financial sources must be checked.

Competitive Advantages:

• Strong association with Indian Oil Corporation Limited (IOCL).
• Established infrastructure and refining capabilities.
• Strategic location in Southern India.

Future Outlook #

Expansion Plans or Growth Strategy:

• CPCL has plans for capacity expansion and modernization projects to enhance its refining capabilities and improve operational efficiency. Details of specific projects can be found on their website.

Sustainability Initiatives or ESG Commitments:

• CPCL focuses on environmental protection through various initiatives, including energy conservation, waste management, and emissions reduction.
• Details of their ESG commitments can be found in their annual reports and sustainability reports.

Industry Trends Affecting Their Business:

• Growing demand for petroleum products in India.
• Shift towards cleaner fuels and renewable energy sources.
• Stringent environmental regulations.
• Fluctuations in crude oil prices.

Long-Term Vision and Strategic Goals:

• To enhance refining capacity and capabilities.
• To improve operational efficiency and profitability.
• To focus on sustainable and environmentally friendly practices.
• To contribute to the energy security of the nation.

Chennai Petroleum Corporation Limited (CPCL) Performance Analysis (FY2021-22 to FY2023-24) #

3-Year Trend Analysis of Key Financial Metrics #

The following table summarizes key financial metrics for CPCL over the past three fiscal years (FY2021-22, FY2022-23, and FY2023-24). All figures are in ₹ Crores unless otherwise stated.

Key Observations #

• Volatility with Strong Underlying Improvement: While FY2022-23 was an exceptional year, and FY2023-24 saw some decline from that peak, the underlying trend over the three years shows a strong improvement in profitability and financial health.
• Debt Reduction: CPCL has made a concerted effort to reduce its debt, significantly improving its financial leverage.
• Market Confidence: the multifold increase in market caplitalisation indicates the confidence reposed by the investers.

Business Segment Performance #

CPCL’s primary business is refining crude oil. Key highlights include:

• Distillate Yield: Consistently high and improving distillate yield (76.2% in FY23-24).
• Product Diversification: Active diversification into specialty products like Pharma Grade Hexane, LABFS, Wax, MTO, and specialized fuels like ISROSENE.
• **Highest production Records:**All time high production of HSD, MS, LPG, Naphtha, ATF, Bitumen, MTO and Petcoke.
• Operational Efficiency: Lowest ever Specific Energy Consumption and Energy Intensity Index achieved.
• Capacity Utilization The refinery recorded highest ever crude processing volume at 11.642MT attaining the capacity utilization of 111%.

Major Strategic Initiatives and Their Progress #

• Cauvery Basin Refinery Project (9 MMTPA): New refinery in Nagapattinam as a joint venture with IOCL. Land acquisition completed, site enabling activities in progress, and statutory approvals being pursued.
• Group II/III Lube Oil Base Stock Project: Project at the Manali Refinery. First-stage approval received, pre-project activities underway. Final investment approval is in process.
• Pharma Grade Hexane Production: Nearing completion (Q2 FY24-25 expected).
• Renewable Energy Integration: Increasing renewable energy capacity (20MW of RE capacity(Solar+Wind)).
• Digitalization: Investing in digital technologies, including a Cyber Security Operation Centre, in-house developed marketing dashboards, and exploring the use of caged drones for inspections.
• R&D focus: Collaboration with academic and industrial partners for research and development activities.
• Net Zero Target: Commitment to achieve Net-Zero operational emissions (Scope 1 and Scope 2) by 2046.

Risk Landscape Changes #

• Increased Focus on Climate Risk: Growing awareness of transition and physical risks.
• Cybersecurity Focus: Establishment of SOC.
• Geopolitical Instability: Continues to present a risk.
• Regulatory Risk: Stricter Environmental Regulations.
• Talent Risk: Need to retain talent and attract employees with skills.

ESG Initiatives and Metrics #

• Environmental:
  • Reduced water consumption (6.6 MGD in FY23-24 vs. 7.1 MGD in FY22-23).
  • Increased use of RLNG.
  • Lowest ever Energy Intensity Index (EII) and Specific Energy Consumption.
  • Zero steam leaks in process units.
  • Zero freshwater consumption for industrial purposes; reliance on desalination and sewage reclamation.
  • 100% Conversion of conventional lights to LED
  • Plantation of 15000 trees in past 5 years
  • Full compliance with environmental standards for oil refineries.
  • Investment in renewable energy projects.
• Social:
  • Significant CSR spending (₹20.11 crore).
  • Focus on community development, healthcare, education, and skill development.
  • Support for marginalized groups (SC/ST, women-owned MSEs).
  • High employee satisfaction (79% score) and low attrition (1.3%).
  • Excellence in safety performance (1,647 accident-free days).
  • Emphasis on training and development (highest ever average training man-days).
• Governance:
  • Robust Enterprise Risk Management (ERM) framework.
  • Risk Management Committee at the board level.
  • Alignment with TCFD guidelines.
  • Commitment to ethical governance, transparency, and accountability.
  • Independent third-party assurance of non-financial disclosures.
• ESG Targets:
  • Net Zero operational emissions by 2046
  • RLNG consumption to 2.5 MMSCMD
  • Green Hydrogen production and utilization by 100%
  • installation of 7MW solar plant.

Management Outlook #

• Optimistic but Ccautious: Strong financial performance and strategic initiatives suggest an optimistic outlook, but the volatility of the oil and gas market requires caution.
• Growth-Oriented: Expansion projects and diversification indicate a clear focus on growth.
• Sustainability-Focused: Commitment to Net Zero and ESG performance.
• Efficiency-Driven: Emphasis on operational excellence, digitalization, and cost optimization.
• Adaptable: Proactive management of risks, including climate and cybersecurity.

Comparative Analysis with Industry Averages #

• Refining Complexity: Nelson Complexity Index (NCI) of 10.03 positions CPCL as one of the most complex refineries in India.
• Gross Refining Margins (GRM): CPCL’s GRM outperformed Singapore, indicating relative strength.
• Debt-Equity Ratio: CPCL’s significantly reduced Debt: Equity ratio.
• ESG Performance: CPCL’s commitment to Net Zero by 2046.

Conclusion #

CPCL demonstrates a strong performance trajectory with a focus on operational excellence, strategic growth, and sustainability. The company’s financial position is considerably stronger than in previous years.

Detailed Analysis #

Chennai Petroleum Corporation Limited - Balance Sheet Analysis (2022-2024) #

Three-Year Comparative Analysis (Assets, Liabilities, and Equity) #

(₹ in Crores)

Significant Changes in Major Line Items (>10% YoY) #

The following items showed significant changes (greater than 10%) year-over-year from 2023 to 2024:

• Capital Work-in-Progress: Decreased by 12.24%.
• Other Financial Assets (Non-Current): Increased by 23.53%.
• Income Tax Assets (Net): Increased by 21.38%.
• Inventories: Increased by 15.33%.
• Cash and Cash Equivalents: Increased by 249.72%.
• Other Financial Assets (Current): Decreased by 90.30%.
• Other Equity: Increased by 37.70%.
• Total Equity: Increased by 36.81%.
• Borrowings (Non-Current): Decreased by 36.27%.
• Lease Liabilities(Non-Current): Decreased by 40.74%.
• Lease Liabilities(Current): Increased by 12.79%.
• Other Financial Liabilities (Current): Increased by 29.95%.
• Total Current Assets: Increased by 14.10%.
• Assets included in disposal group held for transfer: Increased by 22.16%.
• Liability included in disposal group held for transfer: Increased by 69.78%.
• Total Non-Current Liabilities: Decreased by 25.16%.

Analysis and Reasoning #

• Capital Work-in-Progress (Decrease): This might indicate completion of major projects, capitalization of assets, or a slowdown in new capital investments.
• Increase in Cash and Cash Equivalents: This means that the company has significantly improved cash positions.
• Other Equity increase: The significant jump could be attributed to Retained Earnings, driven by the company’s profitability, or to the reduction in Liabilities.
• Borrowings Decrease: The company paid off some of it’s debt.
• Decrease in Current Lease Liabilities: Decrease is on account of adoption of new accounting policies with respect to leases.

Working Capital Trends #

Analysis #

• Working Capital: CPCL has a significant change in it’s working capital from negative in 2023 to posititve in 2024.
• Current Ratio: A current ratio of 1.16 indicates that CPCL has more current assets than current liabilities.
• Quick Ratio: A quick ratio of 0.07 is quite low and suggests potential liquidity challenges.

Asset Quality Metrics #

Analysis #

• Fixed Asset Turnover: Measures how efficiently a company uses its fixed assets to generate sales. A decreasing turnover suggests lower utilization of fixed assets.
• Inventory Turnover: How many times a company sells and replaces its inventory over a period. A lowering of turnover, suggesting slowdown in sales.

Debt Structure and Maturity Profile #

Analysis #

• CPCL decreased Non-current Borrowings and maintained it’s current borrowing levels.
• Debt-to-Equity Ratio: The ratio has come down. A lower ratio generally indicates less financial risk.

Off-Balance Sheet Items #

Chennai Petroleum Corporation Limited (CPCL) Financial Analysis #

Revenue Breakdown #

• Segment: CPCL operates in downstream petroleum refining, without segment-wise revenue breakdown.
• Geography: Operations and sales are entirely within India, serving Tamil Nadu and surrounding southern states.

Cost Structure Analysis #

Major cost components include:

• Raw Materials (Crude Oil): ₹57,964 crore in FY 2023-24 (₹67,533 Crore in FY 2022-23).
• Purchase of Stock-in-Trade: Increased from ₹1,181 Cr to ₹1,911 Cr.
• Employee Benefits Expense: ₹735 Cr in FY 23-24.
• Finance Costs: ₹434 Cr in FY 23-24.
• Depreciation and Amortization: Non-cash expense.
• Other Expenses: ₹5,428 Cr in FY 23-24 (power & fuel, repairs & maintenance, freight, administrative).

Margin Analysis #

• Gross Refining Margin (GRM):
  • FY2023-24: $8.64/barrel
  • FY2022-23: $11.91/barrel
  • Trend: Decreasing.
• Net Profit Margin:
  • FY 2023-24: 3.86%
  • FY 2022-23: 4.43%
  • Trend: Decreasing.
• EBITDA Margin
  • FY 2023-24: 5.66%
  • FY2022-23: 8.83%
  • Trend: Decreasing

Operating Leverage #

• High fixed costs (depreciation, maintenance).
• Changes in throughput volume and GRM significantly impact profitability.
• Demonstrated positive operating leverage in FY2023-24 due to record throughput.

EPS Analysis #

• Basic EPS:
  • FY2023-24: ₹182.05
  • FY2022-23: ₹239.27
• Diluted EPS:
  • FY2023-24: ₹182.05
  • FY2022-23: ₹239.27
• Trend: Decreasing. No difference between basic and diluted EPS.

Quarterly Trends #

• Crude oil processing reached a maximum of 1072 TMT in March 2024.

Key Takeaways #

• Operational Excellence: Record throughput and efficiency.
• External Market Pressure: Declining GRM and increased finance costs affect profitability.
• Strong Financial Position: Lower debt-equity ratio.
• Commitment to Shareholders: High dividend declared.
• Focus on Clean Technology and reduction of pollution levels.

Financial Analysis of Chennai Petroleum Corporation Limited (CPCL) #

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) Components: #

• Profit Before Tax: ₹3,660 crore (Standalone), ₹3,657 crore (Consolidated) - FY 2023-24.
• Adjustments (Non-Cash Items):
  • Depreciation & Amortization
  • Interest Income
  • Finance Costs
  • Provisions
  • Dividend Income
  • Loss on disposal of assets
• Changes in Working Capital:
  • Trade Receivables
  • Inventories
  • Trade Payables
  • Other Payables & Receivables
  • Provisions

Investing Cash Flow (ICF) Components: #

• Purchase of Property, Plant & Equipment (PPE):
• Proceeds from Sale of PPE:
• Investments: related to JV.
• Interest income received
• Dividend Received:

Financing Cash Flow (FCF) Components: #

• Proceeds from/(Repayments of) Borrowings:
• Interest Paid:
• Dividends Paid:
• Lease payments
• Proceeds from Securities Premium:

Working Capital Management Efficiency: #

• Inventory Turnover: 6.27 Times(Standalone).
• Trade Receivables Turnover: 7.77 Times(Standalone).
• Trade Payables Turnover: 5.78 times(Standalone).
• Current Ratio: 2.14
• Changes in Working Capital:

CAPEX Analysis #

• Completed projects includes New Sulfur Block, Demountable Flare, Coke Handling System, VOC Collection & Removal.
• Ongoing Projects such as the construction of 9.0 MMTPA refinery at Nagapattinam is a JV.
• Future projects Pharma grade hexane production, FCCU Revamp.

Dividend and Share Buyback Trends: #

• Dividend: ₹55.00 per share for FY 2023-24.
• Share Buyback: No share buyback program during the reporting period.

Debt Service Coverage: #

• Debt Service Coverage Ratio (DSCR): 6.73 (Consolidated) and 6.74 (Standalone).

Liquidity Position: #

• Current Ratio: 2.14 (Standalone)
• Cash and Cash Equivalents: INR 2,519 Crore (Standalone)
• Borrowings: Significant decrease in both short-term and long-term borrowings.
• Debt to Equity Ratio: 0.31