Chennai Petroleum Corporation Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Yogesh Patil from Dolat Capital.

Your GRM is premium to Singapore, is there any inventory gain during the quarter which help you to post the better GRM?

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

Broadly, what is happening, we use in our long-term a lot of Basrah heavy, Basrah medium grade crude from IRAQ and then Arab grades from Saudi ARAMCO. The premium/discount is based on Official Selling Price (OSP) declared by the supplier monthly. Looking into our configuration we have optimised it on an overall economics angle also and these are the best suitable crudes for us and that is how we have kept them in our long-term basket.

Basrah is an Iraqi crude and generally Iraqi provides $2-$3 per barrel kind of discounts to the Indian crude market or general benchmarks, if I am not wrong, correct me.

It may not be exactly same and they vary from month to month. But as I said, more than the discount, the type of crude suits us in our economics based on our configuration plays the significant role. That is how we have kept them in our long-term basket, and we prefer them considering the overall economics.

My third question is about the refinery expansion plans at Cauvery. Can you update us on the revised project cost, the completion, the commissioning timeline, and post-completion of this refinery project? How refinery product slates will change?

Let me tell you about some updates on the project. On the CBR update, in the last year we revised the capital cost as well as the capital structure. The revised capital cost is at Rs. 36,354 crores with a 25 75 equity holding between CPCL and Indian oil respectively. The most important updates with respect to the project is now we have full custody of the land. So, about 600 acres, which was already with CPCL and another 600 acres, which was acquired in the process, both is in our possession and the pre-project activities of boundary wall construction, and all those things are almost at a big stage. We are awaiting CCEA approval, that process is on, and we expect it in few months. Some more updates will come in that respect. With respect to product slate, this new refinery had a 6% PP i.e. petrochemical index of 6%. Others were broadly in line with normal standard only. This did not have any NAPHTHA, or the slate did not have any NAPHTHA. That was on the product slate side.

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

PP, polypropylene.

Lastly, the post-completion of this refinery, what kind of debt levels or debt to equity levels we can expect?

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

Thank you.

Can you highlight if there are any expansion plans in your existing refinery, whether in the form of expansion or petrochemical integration?

So, because this is a very old refinery, a significant capacity expansion may not be on the radar immediately. But as you may be aware , multiple units exist within our refinery. There are lot of schemes with de-bottlenecking, which may improve the capacity. Though, in quantity terms it may not be much. But I would like to highlight one more thing, LOBS i.e. Lube Oil Based Stock, Group- II and III, the proposal is at a very advanced stage on approval, wherein NAPHTHA and HSD will be upgraded to LOBS Group-II and III. 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.

In that context, can you highlight your CAPEX guidance for the next two years? And would that CAPEX guidance also include the earlier discussed LOBS project?

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

Thank you.

Thank you. The next question is from the line of Sumit from KPL.

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

In 2025, our refinery crude unit 1 which caters to lubes will go into maintenance around August, September. But yes, for more detail, I will ask Mr. Anil to talk about the current M&I, which happened in FY 24-25, which you asked as well as some details about this maintenance.

Good evening. In 2024-25, we had a maintenance shutdown of one of our crude units. We have three crude units. One of our crude units and some important secondary units like Delayed Coker, FCC, etc., went for scheduled maintenance and that has been successfully completed. In the current financial year 2025-26, one of the other crude units will go for maintenance along with the lubes block as such.

Other question is, are there any plans to upgrade low-value products like pet coke to higher-value products?

As we said, that is a journey we engage in continuously. Last year, we upgraded another capacity in terms of pharma grade hexane. Now, we are 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 are continuously in work for various other value-added products which are in the fray.

And other question is regarding the dividends, like, is the inventory loss and the maintenance shutdown the only reasons 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. The primary reason is the international cracks. The cracks which were there at about close to $13 to $15 per barrel in HSD and other products has come down to 10 or sub- 10 level in the current year. And that is not a specific phenomenon with respect to CPCL. That is the industry phenomena which had happened.

Thank you.

Thank you. The next question is from the line of Yash Nandwani from IIFL.

Sir, I am not sure if this was shared earlier. Could you please confirm the share of Russian crude in 4th Quarter of FY25 and how it is trending in 1st Quarter of FY26?

I'll term it as an 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 US, African and others. So, because we have about 55%-60% term, that leaves us another 40%. And normally we keep around 30% (+/- 4% to 5%) for our opportunity crude evaluation. Depending on whatever crude is most beneficial in economics terms, suiting our technical requirement we optimize that type of crude.

Sir, also could you provide some color on the discounts on opportunity crude in 4th Quarter?

On an annual basis, if you ask me, the average would be little less than $2 per barrel. In the last quarter, it would be less than $1 per barrel. But intermittently, there were $3- $4 per barrel also. And what is happening now, again that $1-$2 per barrel seems feasible with little bit of whatever we have done now in the current year.

So, current discounts are close to $2?

Not on all, some of the time. At times we are getting even $ 0.5 per barrel; at times we are getting $1 per barrel. Even $2 per barrel is feasible.

Okay, thank you.

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

I will try my best and I will give you some broad guidelines, how to evaluate CPCL and how to project our earnings. So, one point, whatever I said, and you also reiterated is very true that what a refinery earns is the difference between crude and product prices internationally because our prices are at international parity prices. And normally people take HSD as a benchmark because that is almost close to 50% of the product slate. HSD, ATF, MS, these are three prominent products. And if international cracks are higher the profits will be 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 shutdown that much of product processing availability is under maintenance, that affects profitability. Plus, every M&I shutdown also involves startup and shutdown cost. So, the operating cost also remains little elevated. Now, if I compare the previous-to-previous year and last year for CPCL, in year 2023- 24 we ran into a full capacity, because the maintenance shutdown happens in a cycle of 3-5 years for a particular unit. There was no maintenance shutdown of any of the units in 2023-24 but in 2024-25, as CGM Technical Mr. Anil explained, we had few primary and few secondary units which went on maintenance shutdown that affects efficiency and availability of processing and availability of product. Now, when you look forward 2025-26, the impact of shutdown that will happen in the current year is lower than that in the previous year. There is one unit shutdown, one 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 part we started April in a muted fashion in line with Q4 or March, something like that. May’25 prices seem to be better than April’25. But on the pricing, the volatility is so high. Every month it is changing drastically. And every $1-$2 of crack impacts the profit because there is a constant operating cost. So, I think taking a guess on the cracks will not be feasible. But yes, on the operational side, we intend to improve further on a capacity utilisation levels, on energy intensity index and fuel efficiency, we would improve on a continuous basis.

Thank you very much. It was a wonderful explanation. And one more question I have is that since you are going in for a JV company with a huge new refinery, 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 CPCL?

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

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

Sir, what is the final estimate of the refinery’s capacity and the cost structure?

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

Thank you very much.

Thank you. The next question is from the line of Achal Shah from Ambit Capital.

As you said about the 30% sourcing from alternative sources like where we are getting discounts, how much of that is Russian and how much is from other parts? Can you give a breakup of that? Opportunity crude sir.

Opportunity crudes in the past two years are predominantly represented by Russian crudes and since we have the capability to process more than 150 grades of crudes broadly consisting of various regions like West Africa, US and other crudes from middle east this may vary depending on overall economics.

Following up, the average discount for this opportunity crude will range in what $3 to $4.

Last year, that is the Financial Year’24-25, the average was around $1.5-$2. But it has gone to a high of $3-$4 and to a low of less than $1 also.

Thanks for your reply.

Thank you. The next question is from the line of Harshraj Aggarwal from YES Securities.

We are present in the southern market, and we are aware that the market is in the shortfall. If you could cover some part of it, what is the shortfall and how it is going to pan out in the next few years given the demand is growing.

I will tell you something which is very clear and crisp. MS in southern market, there is a clear shortfall so, the production is less than demand. It is close to about 20 TMT per month. So, that is how, if you see in CPCL strategy whatever little flexibility is there, we have continuously tried to increase MS, 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 projection. Like MS, they are projecting 6% and here we see around 4%-5%. HSD we see at 3% growth forecast, as against 2.5% odd here. So, in others we do not see much of a difference. But yes, in MS products are moving from other market to here. So, that is how we have made constant effort to increase our production of MS where-ever there is growth opportunity as well as the product is in shortfall in the region.

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

I am happy to share with you, we do not consume RLNG as compulsion. So, if you have seen 2 years before, whatever was RLNG consumption, almost we have doubled in 2 years. 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 realisation and the net cost, delivered cost of RLNG these determine our RLNG consumption. So, if I have increased more, it means we have felt this is beneficial on economics angle. Also, we need to keep in mind that close to our coast, is a RLNG terminal and we are connected to it directly through pipelines. 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.

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

Let me start with the domestic market first. As you have yourself said, no capacity is coming immediately. Maybe it will span over 2 years, or little after that, those capacity will come up. 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 two years. And with respect to short-term shutdowns and all, the kind of monthly fluctuation that happens in GRM and others are based on short-term demand supply gaps. Short-term demand supply gaps do take care into short- term surplus or deficit of product. Internationally also, though there are some capacities that are coming in Africa predominantly, but there may be some other capacities that 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 long-term demand projection. And long-term demand projection for the last some time is closely watched. So, I feel that it may not have a significant impact on immediate or near immediate or mid-term, medium-term, with respect to margins or GRM. But yes, margins and GRMs are not affected by a single factor, that is affected by multiple factors which change swiftly even within a short gap.

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

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 based stock and wax. And because of our uniqueness, 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 new product development. And operationally for the last 3-4 years we have taken a path of aggressive improvement in efficiency levels . Otherwise, you will not find out where in a short span of 2-3 years, the fuel & loss will come down by 1% to 2% kind of stuff. But yes, because we have taken an aggressive stand, we have been continuously improving. That is how these parameters are achieved. Our team is highly motivated, and they will continue to contribute their best in their respective domain to improve the operational excellence further.

Thank you. Ladies and gentlemen, on behalf of YES Securities, that concludes this conference. Thank you for joining us.