Chennai Petroleum Corp Ltd
Strong reported performance on better operational activity and GRMs
Q3 outlook better on stronger refining cracks
Financial Performance – Stronger-than-expected results driven by higher GRMs and inventory gains: EBITDA/PAT was at Rs11.5/7.3bn, versus Rs mn 986/(566) in Q1FY26 and Rs bn (6.7)/(6.3) in Q2FY25). The performance is stronger than our estimate of Rs bn of 7.6/4.3 on stronger reported GRMs on both core GRMs and inventory gains. Possible support in GRMs from higher souring of discounted Russian crude during the quarter.
GRM Performance – Reported GRMs stood above benchmarks and estimates: CPCL’s Q2FY26 reported GRM was at ~USD 9.1/bbl (USD 3.22 the quarter prior, negative USD 1.6 a year ago). As per our assumption, there could be an inventory gain of ~USD1/bbl which means that the core GRMs could be at USD8.1/bbl higher than the Singapore GRMs of USD4/bbl.
Refinery throughput was 3.013mmt at ~114% utilization (113% in the prior quarter, 79% a year ago) was better than our expectations despite shutdowns in one of the phases at the end of Sep’25 for 10days, the shutdown continued by another 15days in early Q3 and is now back to normal (do not see any major impact on utilization in Q3).
Operating Cost – Opex largely stable: Opex at USD 2.8/bbl opex is at par with the trailing 8-quarter average of USD2.9/bbl. RLNG consumption during the quarter was ~1.6mmscmd versus a peak potential of 2.1mmscmd, flat QoQ. Forex impact: There was possibly a forex loss impact of Rs 1bn during this quarter.
Debt & Capex – Leverage improved QoQ and YoY; capex spend remains modest: Sequentially, the debt decreased by 20.6bn to Rs 18.8bn (vs peak of Rs104bn) and decreased by Rs 41.8bn YoY. Capex for quarter was ~Rs 960mn (H1FY26 at Rs1.75bn) and the target for FY26 at Rs 7bn.
On our FY27 numbers we assign a multiple of 1.6x P/BV to arrive a target of Rs 1,100/share with a BUY Rating.
Other Highlights
▪ Crude Sourcing mix: Indigenous contributed 15%, 20% Saudi, 35% Iraq, Russia 20%, and rest 10% on Spot from other countries. The Russian crude discounts improved ~USD1-2/bbl while spot volumes added benefit as Brent was lower than Dubai crude. In terms of the slate mix, it remained unchanged the diesel contribution to the slate was ~45%, gasoline ~11%, ATF ~8% and lubes ~2%, fuel & loss at ~7.8% was lower.
▪ H1FY25 performance: EBITDA at Rs 12.4bn (vs a loss of Rs 109mn in previous period) while PAT at Rs 6.75bn (vs a loss of Rs 2.9bn in previous period) and the reported GRM at USD6.17/bbl (vs USD2.93). The OCF is at Rs 12.5bn (vs Rs 80mn in previous period) on stronger GRMs.
ANALYST VIEW & INVESTMENT THESIS
1-Year View:
CPCL stands to benefit tactically from the recent surge in refining margins, driven by geopolitical risk premium on crude and resilient diesel cracks. With Brent ~65/bbl, near-term GRMs may remain elevated, supporting earnings in Q3FY26. The company at normal scenario sources over 20% of its crude requirements from Russia at a discount, thereby boosting GRMs, one of the highest amongst Indian refiners at a single location. CPCL has operational synergies with IOC, including pooled sourcing of crude oil through the latter, and benefits from the parent’s bulk purchases. Besides, IOC purchases over 90% of Chennai Petroleum’s input. The benchmark Singapore GRM and the company’s GRM are trending higher than their last 7-year averages, supported by stronger demand, reduced supply, and lower stocks. We assume FY26 and FY27 GRMs of respectively USD7.4 and USD6.9/bbl vs the last 7-year average core GRM of USD6.1 and the Singapore GRM of USD5.0.
Global Refinery Closures Tighten Medium-Term Supply Outlook
The global refining system is entering a structurally constrained phase, with planned shutdowns and financial stress forcing capacity rationalization in key markets. An improved fundamentals from the refining margin recovery, a shortfall of products in the global market with Russia who has starting to import gasoline from Asian countries. Refining margins have held up despite relatively stable or lower crude prices compared to past years, as refinery closures in the US, Europe, and elsewhere have reduced overall refining capacity. California, which already faces persistent fuel price volatility due to its logistical isolation and unique CARBOB-grade gasoline requirements, is poised to lose 17% of its in-state capacity (~284kb/d) by mid-CY26, with Phillips 66’s Wilmington and Valero’s Benicia refineries scheduled for closure. Simultaneously, the UK refining sector is under acute financial stress. Traders are already crowding the diesel import market, and backwardation in ICE gasoil markets has spiked. These developments, occurring amid structurally low inventories, are likely to support sustained strength in distillate cracks through FY26, creating a favorable backdrop for complex distillate-oriented refiners like CPCL.
3-Year View:
Over the next three years, CPCL’s growth trajectory is set to be defined by the commissioning of the 9mmtpa Cauvery Basin Refinery (CBR) greenfield project, which is expected to materially enhance capacity and complexity. The CBR project cost was revised to Rs363.5bn, with CPCL holding 25% equity and IOCL 75% in the JV. Land acquisition is complete and pre-project activities are nearing peak levels. The planned slate includes 6% polypropylene, no naphtha, and otherwise standard mix. The debt:equity structure remains at 1:2 for the JV. CPCL is planning to upgrade Naphtha and HSD to produce LOBS 2 & 3, with a capex of Rs4-5bn/year over the next two years. Maintenance capex is expected to remain ~Rs2.5-3bn/year for the next two years, with total capex estimated at ~Rs7-8bn annually.
Peer Benchmarking:
▪ GRMs: Historically volatile; lags RIL but at par with MRPL and other Indian refiners.
▪ Growth: Strongest visibility among peers via CBR capacity expansion; others like MRPL lack scale triggers, while growing peers include OMCs refining capacity expansions and RIL (diversified streams).
▪ Valuation: At CMP, the stock trades at 3.8x/4.0x FY26e/27e EV/EBITDA and 1.2x/1.1x P/BV.
