Chennai Petroleum Corporation Limited (500110) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '25 Earnings Conference Call of Chennai Petroleum Corp Limited, hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshraj Aggarwal from YES Securities. Thank you, and over to you, sir.

Thank you, [ Suja ]. A very good evening to everyone. I would like to extend a very warm welcome to all the participants and the top management of Chennai Petroleum. So just to highlight to you who all are president, we have with us Shri Rohit Kumar Agrawala, Director Finance; Shri Anil Sahni, Chief General Manager, Technical Services; Shri Dharmaraj, Chief General Manager, Finance; and Shri Srikanth, Chief General Manager, Technical. So I would like to hand over the call to the management for opening remarks. And post that, we can move on to Q&A session.

I'm sorry to interrupt, the management line is disconnected. Please give me a moment. Ladies and gentlemen, we have the management reconnected. Over to you, sir. Sir, you may please go ahead.

Good evening, everyone. I'm Rohit Agrawala, Director Finance, Chennai Petroleum. And with me, my senior colleagues are Anil Sahni, Chief General Manager, Technical Services; Mr. Dharmaraj, Chief General Manager of Finance; and Mr. Srikanth, Chief General Manager, Technical. First of all, I must thank you all for joining this call today. On behalf of CPCL team, I welcome you all to this post quarter 4 financial year 2024, '25 results con call. Before we begin, I would like to mention that some of the statements that we'll be making during this con call, are based on our assessment of the matter, and we believe that these statements are reasonable. However, the result would be different depending on the number of events and uncertainties. Our Q4 -- quarter 4 2024, '25 results are with you for quite some time now. I hope all would have gone through, would have done their own analysis. And during this call, I'll be happy to take questions based on the same. To start with a brief summary from my side. During this quarter, our refinery continued its stellar performance both on physical as well as financial parameter. I'd like to highlight some significant developments as we step into our Diamond Jubilee year, this being our Diamond Jubilee year, CPCL has been upgraded from Schedule B to Schedule A central public sector enterprise by Government of India during August 2024, which brings in -- which enables us for a lot of freedom in recruitment as well as going forward, Board powers into our operations. Now let me start with the physical performance. CPCL achieved a crude throughput of 10.45 MMT that is equivalent to 99.5% of our installed capacity. And this must be seen with respect to the turnaround that has happened during the year. And if you take that consideration, again, you will find that this performance is quite comparable to the previous year's performance where CPCL clocked 111% capacity utilization. And if I look -- if I keep my focus only on quarter 4, the crude throughput was 2.974, which is 113% of installed capacity. Again, that reinforces that performing much beyond our rated capacity is now in norm and CPCL is capable of that repeating year after year. The next, I will like to state the lowest-ever energy intensity index registered during the year further underlines the optimized energy utilization. I must place it that if you remember, our energy indexes and our fuel and loss indexes were quite high 2, 3 years back and we went to a road map where we said on a sustained basis, consecutively, we'll bring it down to very efficient levels. And in that context, the fuel and loss has come down to 8.5% -- 8.51% for the year as a whole. The MBN is at around 72.2. The best EII is -- figure of 87.4 has been clocked in the current year, '24-'25. With respect to value-added product, we -- in the basket of food-grade hexane, we have now added pharma-grade hexane of equal capacity, and that has also reflected in our sales where products like hexane, MTO, Lean Butane, the sales have increased in this current year. With respect to RLNG and our commitment to net zero, RLNG consumption during the current year -- during the previous year, that is '24-'25 was 527 TMT as against 441 TMT in the previous year. It must also be highlighted here that even the previous year was an ever best and much above earlier years. And so we look constantly at this space. And based on our economics, we try to increase the RLNG [indiscernible] for overall profitability and environmental sustainability. During the financial year, we have processed almost 64%, 65% of high sulphur. Our long-term sourcing remains at around 55% to 60% and the spot and the opportunity crudes depends on individual economies and we try to harness them, increase them to keep the profitability at the best. Pharma-grade hexane, we talked about. So that's a new product that we introduced during the year, which gives us inroads into a new market altogether. We also did a trial of SAF, sustainable aviation fuel, so we will be one of the few players who'll have an early role -- who has a possibility of an early rollout of SAF. Safety is pretty critical in an industry like this. Again, we are happy to share that the zero fire accident -- incident is continuously upgraded and we continue to have it. Now it's almost 1,884 fire-free days as of March 31, 2025. To summarize the physical performance, we are committed to develop new schemes on energy efficiency, further -- take the fuel and loss reduction road map further lower and then develop and enhance production of value-added products as well going forward. Now I turn to financial performance. The GRM for '24-'25 for a full year basis is $4.22 as compared to the previous year $8.64. But if you compare it to Singapore benchmark, the Singapore benchmark was $3.79 in the current year. We all know that product tracks have reduced as compared to previous year in international market. But our endeavor to better the benchmarks continues. If I turn to quarter 4, the GRM was $6.22 per barrel. Again, if I compare the previous year same quarter, it was [ $7.7 ] per barrel. But if I compare to Singapore benchmark, the Singapore benchmark was only $3.1. So you can -- so the efficiencies would be evident. And when we go further, we'll also explain where from these efficiencies are coming. We have been continuously giving a premium GRM return over Singapore GRM and if you ask why it is coming, post our shutdown, maintenance M&A, schedule M&A, our refined production has come back to much above schedule capacities. Our fuel consumption are at the lowest possible on an incremental quarter-on-quarter basis. Fuel and losses are at the lowest possible and then efficiencies are to the mix. When I turn to leverage position, the leverage position, debt equity position as on March 31, 2025, is 0.39x compared to 0.32x in the previous year. At an absolute amount, the debt stands at INR 3,100 crores as compared to INR 2,762 crores. Net worth was around INR 8,000 crores as on March -- 31st March 2025. With above, the Board has also recommended a dividend of INR 5 per equity share. That is 50% of the face value for the current year. And as we all know, this is subject to approval at AGM, which will happen in the due course. On the CapEx front, in the current year, we have spent INR 673 crores as CapEx for the current year. Our maintenance CapEx remains INR 200 crores to INR 250 crores range. Next year forecast, also, we feel the CapEx will be in that range. And the maintenance CapEx will be at around INR 200 crores to INR [ 250 ] crores range. And depending on value-added projects, the actual will be a little different. On the governance front, I'm happy to share that we have successfully implemented the information security management system, ISIM -- ISMS, and certified for ISO 27001:2022 enhancing our system security robustness. The relevance of I'm pointing out here, is we are very aware that in the present systems, beyond the normal safety of the plant, the system safety, cybersecurity are of importance -- due importance and the company gives proper attention to that. Another highlighting factor on the governance front, I would like to highlight, is CPCL started with the IR reporting, reporting annual report in the IR reporting framework in '22, '23. Immediately, we are among the select few who in '23, '24, immediately next year, we got assured. So we're the select few who started IR with assurance. And I'm happy to share that now we are part of the S&P Global ESG score, and CPCL has achieved a score of 46 for the year '24, which is above the average -- Indian average in this field. And the point that I would like to highlight is this is a journey that we have started. Governance -- transparency governance is one of our cornerstone, and we'll keep this momentum forward. Finally, the uncertainty is due to volatility of crude prices do pose a challenge. We are seeing whatever be the direction, but yes, the volatility remains quite high. With these, our broader factors that may drive volatility, we remain focused on things we control. That is fuel efficiency, capacity and we'll operate our refinery efficiently in a safe, reliable and environmentally responsible manner and continue to focus on key metrics of controlling the operating costs as well as maintaining capital discipline by adhering to optimum return on value-added and growth projects and thereby honoring our commitment to create long-term value for shareholders. To summarize, we continue to deliver resilient operational and financial performance and see the momentum to continue in the new financial year as well. Thank you, once again. Now we are open for questions.

[Operator Instructions] The first question is from the line of Yogesh Patil from Dolat Capital.

Sir, your GRM premium to Singapore, is there any inventory gains during the quarter, which help you to post the better GRM?

Yes. The inventory gain is not very significant for the quarter. It's only $0.66, and in absolute rupee terms, it is INR 125 crores only. But on an overall basis, annual basis, the inventory would be a loss that is $0.06 per barrel, INR 40 crores in rupees amount.

My second question, as you mentioned, sir, your long-term crude sourcing is 50% to 55%. Can you provide us some details from which countries you are getting a long-term crude sourcing? And any discounts you receive from the same?

So I'll tell you broadly what is happening. So we use, in a long term, a lot of Basrah-heavy, Basrah-medium kind, and then ADNOC-grade crudes. So those are there. And you know, these are based on OSP prices. But looking into our configuration, we have optimized on an overall economic angle also, these are the best suitable crudes for us, and that is how we have kept them in our long-term basket.

Okay. If I'm not wrong, sir, Basrah is the Iraqi crude. And generally, Iraq provides a $2 to $3 per barrel kind of a discount to the Indian crude market or general benchmarks, if I'm not wrong, correct me.

It may not be exactly same. Normally, the way I understand, one of the OSP, maybe the ADNOC or something, they take a lead and others follow, but there is no clear distinction of $2, $3. But as I said, more than the pricing discount, the type of crude suits us in our economics based on our configuration. That is how we have kept them in our long-term basket. We prefer them.

Okay. Sir, my third question is, again, the refinery expansion plans at Cauvery. So can you update us on the revised project cost and the completion and the commissioning time line? And post completion of this refinery project, how refinery product slates will change?

Okay. So let me tell you some updates on the project... [Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding the line. The management is reconnected. Over to you, sir.

Yes. On the [indiscernible] update, actually, in the last year, we revised the capital cost as well as the capital structure. The revised capital cost is at INR 36,354 crores, with a 25-75 equity holding between 25% for CPCL and 75% for Indian Oil. Some of the most important updates with respect to project is now we have full custody of the land. So 600 about acres, which is already with CPCL and another 600 acres, which was acquired in the process, both have been -- the new one is also in our acquisition. And the pre-project activities of boundaries, all those things are almost at a big stage. We were awaiting CCA approval. That process is on and we expect in few months, some more updates will come in that respect. With respect to product slate, this new refinery had a 6% PP, petrochemical index up 6%. Others were broadly in line with normal standard. Only thing this didn't have any naphtha that way, the slate didn't have any naphtha that way. That was on the product slate side.

So sir, 6% petrochemical index includes which petrochemical products, any broader idea on that term?

PP, polypropylene.

Okay. And sir, lastly, post completion of this refinery, what kind of debt levels or debt-to-equity levels we can expect?

See, this is a separate JV. So the JV will have a separate debt equity and financial. Presently, we are working with the 1:2 debt equity for this JV.

[Operator Instructions] The next question is from the line of [ Krishan Mundra ] from DAM Capital.

Sir, can you highlight if there are any expansion plans in our existing refineries, whether in the form of [indiscernible] expansion or petrochemical integration?

So because this is a very old refinery, a significant capacity expansion may not be on anvil immediately or may not be sustainable. But as people say, multiple refineries exist within a refinery. So there are a lot of schemes which debottlenecks, which improves that -- in quantity terms, it may not be much, but I'd like to highlight one more thing. LOBS, Lube Oil Base Stock, LOBS 2 and 3. This proposal is at a very advanced stage, wherein naphtha and HSD will be upgraded to LOBS 2 and 3. And this seems to be a very profitable project and we are geared up based on approvals. We can take up this project quickly and that should be profit margin accretive.

Understood. And just one more question. Sir, in that context, can you highlight your CapEx guidance for the next 2 years? And would that CapEx guidance also include this particular CapEx -- this particular project?

So the normal maintenance CapEx for the next 2 years would be around INR 250 crores to INR 300 crores, maintenance CapEx plus small regular CapEx normally. And with this project, another INR 400 crores to INR 500 crores you can add for each of the year. So without this project, about INR 300 crores per year. With this project, about INR 700 crores to INR 800 crores per year.

[Operator Instructions] The next question is from the line of [ Sumit from KPI ].

Yes. So a couple of questions here. One is, when is next major refinery maintenance scheduled? And what was the expense in the major maintenance that happened in September, October last year?

Yes. In '25, I think our refinery crude unit 1 will go into -- which caters to lubes will go into maintenance around August, September. But yes, for more detail, I'll ask Mr. Anil to tell about the current maintenance, current M&I, which happened in the current year, which you asked as well as some details about this maintenance.

In 2024, '25, we had a maintenance shutdown of one of our crude units. We have 3 crude units. So one of our crude units and some important secondary units like Delayed Coker, FCCU, et cetera, went for scheduled maintenance that has been successfully completed. In the current financial year, one of the other crude units will go for maintenance along with the lubes block as such.

Okay. Other question is, are there any plans to set up a plan to upgrade low-value products like [indiscernible] to higher value products?

So as we said, that's a journey we engage continuously. Last year, we upgraded another capacity in terms of pharma-grade hexane. Now you're looking at SAF again for premium. So similarly, we have a few more products. But LOBS is at an advanced stage, and that is what I mentioned. But yes, as a refinery, we continuously work for various other value-added products, which are in the...

Okay. And other question was regarding the dividend, like is the inventory loss and the maintenance shutdown the only reason why the dividend has come down so much?

No, dividend has not come down because of maintenance shutdown or any other factor. Dividend has come down because of the profits. When we compare the last year profits and current year profits, there is a significant change. And the primary is international cracks, the cracks which were there at about -- close to about $13 to $15 in HSD and others came down to $10 or sub-10 level in the current year. And that's not a specific phenomenon with respect to CPCL. That's an industry phenomenon, which has happened.

[Operator Instructions] The next question is from the line of Yash Nandwani from IIFL.

Sir, I'm not sure if this was shared earlier. Sir, could you please confirm the share of Russian crude in fourth quarter of FY '25 and how it is trending in first quarter of FY '26?

So I'll term it as opportunity crude and opportunity crude, I think on a full year basis was around 30%, not very significantly different from earlier years. But going forward, the opportunity crude basket may not change, but the composition of opportunity crude basket may change because now we are getting some good offers in other opportunity basket like U.S., African and others. So because we are about 55%, 60% term, that leaves us another 40%. And normally, we keep around 30%, plus/minus 4%, 5% for our opportunity crude evaluation. So depending on whatever crude is most beneficial in economical terms, suiting our technical requirements, we optimize that type of crude.

Okay. And sir, also, could you provide some color on the discounts on opportunity crude in fourth quarter?

Yes, I'll tell you. On an annual basis, if you ask me the average, it would be a little less than $2. In the last quarter, it will be less than $1, but intermittently, there were $3, $4 also. And now in the -- if you want what is happening now, again, that $1, $2 seems feasible. It's a little bit of whatever we have done now in the current year.

The current discounts are close to $2?

Not on all. Some of the time. At times, we are getting even $0.5. At times, we're getting $1, but yes, even $2 is feasible.

The next question is from the line of Nalin Shah from NVS Brokerage.

This is Nalin Shah here. First of all, I think the Q4 results were, I think, quite, this thing, encouraging. But we just failed to understand that how do we actually project the -- I mean, once we look at '23, '24 performance versus '24, '25, it's a vast difference. So we are unable to really understand. And as you mentioned that it is the cracks which decides, I mean, the profitability and the this thing of the company. So if you can just give us some guideline that current year, how do we expect something on the lines of '23, '24 or it could be '24, '25 kind of a situation?

Yes. So I'll try my best. And I'll give you some broad guidelines how to evaluate CPCL and how to project. One point, whatever I said and you also reiterated, is very, very true that what a refinery earns is the difference between crude and product prices internationally because our prices are import parity in international parity prices. And normally, people take HSD as a benchmark because that's almost close to 50% of the product slate. Though HSD, ATF, MS, these are 3 prominent figures. And if international cracks are higher, the profits will be much, much higher. And if it is lower, the profit will be lower. The second factor, which is very important, is M&I shutdown. If there are large M&I shutdowns, that much if product availability -- processing availability is not evitable, so that affects this. Plus every shutdown -- M&I shutdown also involves startup and shutdown cost. So the cost also remains a little elevated. Now if I compare the previous year and last year for CPCL, in year 2023, '24, we ran into our full capacity because the maintenance shutdown happens in a cycle of 3 to 5 years for a particular unit, there was no maintenance shutdown of any of the units in '23, '24. But in '24, '25, as CGM Technical, Mr. Anil explained, we had few primary and few secondary units, which went on maintenance shutdown that affects efficiency, that affects availability of -- processing and availability of products. Now when you look forward, '25, '26, the impact of shutdown that will happen in the current year is lower than that happened in the previous year. There is 1 unit shutdown, 1 primary unit, if you make a single index, it will be lower than what happened last year. So you can expect a throughput, which is higher than last year on the operational part. On the pricing crack part, we started April in a muted fashion in line with Q4 or March, something like that. May prices seems to be a little better than April. But on the pricing, the volatility is so high, every month is changing drastically. And every $1, $2 of crack, more or less, impacts the profit because there's a constant operating cost. I think the [ guess ] on the cracks will not be feasible. But yes, on the operational side, that is fuel and loss, we intend to improve further, throughput. It should be more available. And on energy intensity index and benchmarks, we should improve further.

Wonderful, sir. It was a wonderful explanation. And one more question I have is that since you are, I mean, going in for a JV company with a huge, I think, new refinery. So is it that you will be able to offer some kind of opportunity by way of a rights issue or otherwise to the shareholders of the CPCL?

At this stage, no decision has been taken. But sir, as you know, when we are finalizing the equity part, there will be multiple options, which will be evaluated... [Technical Difficulty]

Ladies and gentlemen, sorry for the inconvenience. We have the management reconnected. Over to you, sir.

Sorry, I think today, the disconnections are more frequent, but any other arrangement will take more time than continuing with this. I think we were there on the right issue for CPCL shareholders.

Yes, whether any participation, we will be able to participate through a right issue of CPCL or anything.

At this point of time, we have decided the debt equity at 1:2, but all these are tentative. So pretty closer to the point, we'll take all capital structure-related decisions. We have not firmed up anything as of now. But yes, any decision that is in the interest of the shareholders will be taken and communicated.

Okay. And sir, what is the final now, this thing, estimate of the refineries, I mean, capacity and the cost structure?

Yes. The new refinery is 36,000 approximately capital costs, 9 million ton capacity -- million metric ton capacity and petrochemical intensity of 6% and which is PP, polypropylene.

[Operator Instructions] The next question is from the line of Achal Shah from AMBIT Capital.

Just a question that, as you said, about the 30% sourcing from alternative sources like where we are getting discounts, how much of that is the Russian and how much is from other parts? If you can give a breakup of that opportunity crude, sir.

Yes. I'll not have an immediate breakup at this point of time. My people can connect, but even whatever I remember out of this, this percentage is not constant among crude types. That has fluctuated widely even during the year. So ex crude, which could have been 30% or 29% at one point, could have gone to 18% at another point and would be replaced by another. So exact numbers, I do not have, but certainly, the team will revert back.

And sir, following up, the average discount for this opportunity crude will range in, what, $3 to $4 per barrel? Is it...

Last year, that is financial year '24, '25, the average was around $1.5 to $2, but it has gone to a high of $3 to $4 and to a low of less than $1 also.

[Operator Instructions] The next question is from the line of Harshraj Aggarwal from YES Securities.

Sir, I had a few questions, which I had got from some of the participants. I'll just go ahead with that. So we are present in the southern market, and we are aware that it's -- the market is in a shortfall. If you could cover some part of it, what is the shortfall and how is going to pan out over the next few years given the demand is growing?

I'll tell you something which is very clear [indiscernible] and very, very different. Like the southern market, MS, there is a clear shortfall. So the production is less than the demand. I think it's close to about 20 TMT. So that's per month, per month. So MS -- and that is how if you see in CPCL strategy, whatever little flexibility we have, we have continuously tried to increase MS. We have continuously tried to increase ATF. So that we can take advantage of the demand scenarios and we can increase our margins. As far as others are concerned, we have seen the southern market to be mostly aligned to the national growth projections, a little bit different, like MS, they are projecting 6%. Here also, we see around 4% to 5%. HSD, we see a 3% growth forecast. Here also, we see about 2.5-odd. So in others, we don't see much of a difference. But yes, in MS, products are moved from other market to here. So that is how we have made constant effort to increase our production of ATF, which is a robust growth as well as MS, which is the shortfall.

So I have another question is on the RLNG piece. So we are consuming RLNG as a feedstock. Sir, at what prices are they viable versus the alternative fuel like [ FO ] or naphtha?

So I must -- I'm happy to share with you, we do not consume RLNG as compulsion. So if you've seen 2 years before, whatever was RLNG consumption, almost we have doubled in 2 years. So we have kept dual-feed system in most of our operations. Our compulsion is very minimal. It is based on economics period-to-period basis. Cost of the feed -- alternative feed, export realization and the net cost, delivered cost of RLNG. These determine our RLNG consumption. So if we have increased more, it means we have felt this is beneficial on economics angle. And also, we need to keep in mind that close to our coast is a RLNG terminal. And we are connected directly through pipelines. And the southern coast is close to the international sea route. So all those advantages accrue to us when we account for our RLNG delivered cost.

Okay. So one last question I had, I wanted to understand your view on the defining market now. We have some shutdowns, some capacity addition, some capacities going out. And in the Indian scenario, you have seen a lot of capacity that is coming up, you have HPCL Rajasthan Refinery, you have expansion at IOCL. So how do you see that market panning out over the next 2 years? The domestic one and the global in terms of the cracks.

Okay. So in the domestic market, let me start with the domestic market first. As you have yourself said, no capacity is coming immediately. Maybe it will spend over 2 years, in the next 2 years or a little after that, those capacities will come up. And there is a PPAC projection, all these capacities are based on the demand, the foregoing demand. So capacities are coming in line with demand, and they will not come immediately, they will come after 2 years. And with respect to short-term shutdowns and all, the kind of monthly fluctuation that happens in GRM and others are actually based on short-term demand supply gaps. So short-term demand supply gaps do take care into short-term surplus or deficit of product that the way people envisage here. Internationally also, though there are some capacities that are coming in Africa predominantly, but there may be some other capacities will go off in some of the developed countries. So again, I will say when people put up large capacities, long-term investment, it is based on demand projection, long-term demand projections and long-term demand projections for the last some time is closely watched. So I feel that not having a significant impact on immediate or near immediate or midterm, medium term with respect to margins of GRM. But yes, margins in GRMs are not affected by a single factor, that is affected by multiple factors, which change it swiftly even within a short gap.

That was all the questions we had. I think if anything, you want to summarize for the participants.

Thank you. I think it was very interactive. The only thing I will tell is that CPCL refinery is perhaps one of the most complex refineries in India. It is the only refinery which has liquid fuel, which has LOBS destock and wax. And because of our uniqueness, we are -- we have some easiness where we are able to come up with new products quickly. Our team is well connected with other research institutes. And we look forward to product development. And operationally, for the last 3, 4 years, we have taken a path of aggressive improvement. Otherwise, you'll not find out where in a short span of 2, 3 years, the fuel and loss will come down by 3%, 2% kind of stuff. But yes, because we have taken an aggressive stand and we've been continuously improving, that is how these parameters are achieved. And the team is motivated. They will continue to make all in their domain to improve the operational excellence further. Thank you. That was from my side.

Thank you. Ladies and gentlemen, on behalf of YES Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.