Background: Chennai Petroleum is a PSU company and a subsidiary of Indian Oil Ltd. (Indian Oil holds 51.90% stake). Company is in Crude Refining business.
Stock Performance during COVID19: Stock is down 50% from its January highs of Rs 164 to Rs 82/share now. Company posted inventory losses worth Rs 1,456 Cr resulting Q4 Net Loss at Rs 1,660 Cr. Crude Oil Prices crashed in the month of March by about 50% which impacted profitability of the company.
Triggers for Reversal: All the negativity is reflected in the Stock prices. Market is expecting reversal of inventory losses in Q1FY21-Q2FY21. Company is expected to bounce back sharply in Q2 as output and demand for refined products is increasing. Company was operating at 60% capacity in the first week of June, but Q2 capacity utilization is expected to touch 80%.
Technical View on Charts: Stock has major support at 79 and at 71 levels while Stock will face strong resistance at 95, 103 and at 125 levels. Current Market Price of the Stock is 83. With about 5-15% downside risk, Stock can be an attractive bet for Medium term investors with an upside potential of up to 50% from current levels.
Disclaimer: Vivek Mittal, Research Head, VM Financial. He is a senior market expert with over 15 years of experience.
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