Chennai Petroleum Corporation : setting up a new grassroot refinery of 9 MMTPA capacity at Nagapattinam

Chennai Petroleum Corporation : setting up a new grassroot refinery of 9 MMTPA capacity at Nagapattinam


  • 2022: Chennai Petroleum Corporation (CPCL) has approved the proposal for formation of a joint venture company for implementing the 9 MMTPA refinery project at Cauvery Basin at Nagapattinam in Tamil Nadu, at an estimated cost of Rs 31,580 crore
  • CPCL will hold 25% stake in the new refinery while Indian Oil and other seed equity investors such as Axis Bank, HDFC Life Insurance Company, ICICI Bank, ICICI Prudential Life Insurance Company and SBI Life Insurance will hold the rest. The board has also accorded approval for equity investment of up to Rs 2,570 crore by CPCL in the JV.
  • The new refinery will produce petrol and diesel of Bharat Stage-VI specifications and polypropylene as a value added product, at a project cost of Rs 31,580 crore.

Weaknesses:

  • Vulnerable to volatility in crude oil prices and forex movements: 
    • Crude oil prices have been volatile over the past few years. 
    • Prices fell sharply to around $20 per bbl towards the end of March 2020, but subsequently recovered to pre-pandemic levels, averaging $64 per bbl. by the end of fiscal 2021. 
    • The geopolitical tensions once again, drove crude oil prices to above $ 100/bbl. during first quarter of fiscal 2023 which normalized to ~$ 75-85/bbl by end of March-2024 before falling to $70-75/bbl in recent months.  Average inventory of crude oil and finished goods of around 40 days makes CPCL's operating performance vulnerable to fluctuations in valuations of inventory stock. 
    • CPCL currently imports majority of its crude oil requirement from the Middle East. 
    • Also, given sale-purchase differential in currency, margins and operating performance to remain volatile to adverse movement in foreign currency mainly USD/INR pair.

 

  • Moderate business risk profile: 
    • Being a standalone refinery, CPCL’s operating performance has a high earnings sensitivity to GRMs. CPCL’s overall GRMs was impacted in fiscal 2020 falling to $2.5/bbl but recovered strongly since then and has remained healthy at $7-12/bbl. 
    • over the past years with healthy crack spreads and support from inventory gains. 
    • The improvement in operating performance in fiscal 2023 was mainly driven by  the spike seen in core GRMs given the impact of the geopolitical event; which moderated in fiscal 2024 with moderation in the realized product crack spreads. 
    • Further, moderation in crack spreads during the second quarter of fiscal 2025 has led to moderation in GRM, which have begun to recover and are expected to be healthy over the medium term, albeit moderated from the FY2023 levels.

 

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