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BUY Chennai Petroleum – Citi

July 12, 2007

Citigroup in a report released a while ago has maintained BUY rating on Chennai Petroleum Corp Ltd [CPCL] with target price of Rs 360.

Citi maintained Buy/Low Risk (1L) rating on CPCL with a target price of Rs 360. CPCL looks well positioned to capitalize on the sustained upturn in refining margins. In this context, CPCL’s capacity expansion by 40% (up from 7.5MTPA to 10.5MTPA) and increased complexity appear timely.

Citi raised FY08-09 estimates by 19- 25% on the back of sustained strength in the refining cycle and reduced chances of subsidy burden. Introducing FY10E. The new target of Rs 360 is based on EV/EBITDA of 5.5x mid-FY09E, at the high end of its historical trading range but at a meaningful discount to peers (6.0-7.0x). Dividend yield of 5.6% provides downside support.

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