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Chennai Petroleum – Banking on Gross Refining Margins

July 21, 2008

Chennai Petroleum reported an extremely strong set of numbers for 1Q, with net income of Rs7.03bn. The performance was led by strong GRMs, which at US$15.9/bbl were well ahead of Singapore (US$8.2/bbl) and 4Q (US$9.6/bbl).

CHPC reported a stronger-than-historical US$2.2/bbl premium (ex-inventory gains) over 1Q Singapore GRMs of US$8.2/bbl. Headline GRMs of US$15.9/bbl were further boosted by inventory gains of Rs4.5bn, which amounts to US$5.5/bbl.

Chennai Petroleum has a High dividend yield of 6%. The company is expected to report a fully diluted EPS of Rs 75.06 for FY09.

We don’t understand the Government of India’s logic to let Oil Marketing Companies like HPCL / BPCL and IOC run under a loss as they have to SELL fuel below their cost of acquisition and live at the mercy of the Government for subsidies while ONGC, Chennai Petroleum, Bongaigaon Refinery etc continue to make hefty profits on the back of rising oil prices and GRMs. Still worse governance by Dr. Manmohan Singh is letting private refiners like Reliance, Essar etc to export when India is starving for fuel.

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