BPCL (Q1 FY13)

Throughput was higher by 13.6% yoy at 5.9mt (Kochi refinery shutdown taken in Q1 FY12). GRM were at US$2.6/bbl, implying a growth of 24% yoy (restated including RLNG costs).

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs352, Target Rs380, Upside 8.0%

Net sales for Q1 FY13 rise 18.2% yoy driven by 1) 8.5% yoy rise in market sales 2) Higher average realizations in Rupee terms
±Upstream companies shared under recovery burden worth Rs36.6bn in Q1 FY13 v/s Rs34.1bn in Q1 FY12
Government contribution for Q1 FY13 was nil as against Rs35.2bn in Q1 FY12
Throughput was higher by 13.6% yoy at 5.9mt (Kochi refinery shutdown taken in Q1 FY12). GRM were at US$2.6/bbl, implying a growth of 24% yoy (restated including RLNG costs).
Net loss of Rs88.4bn was reported for the quarter which stemmed from 1) Nil government compensation 2) High interest costs (up 55% yoy) 3) Forex losses (Rs16.1bn)
BPCL, with huge discoveries in its E&P portfolio is relatively insulated from the vagaries of the subsidy issue. We retain our Market Performer rating as we believe upsides from E&P have been adequately priced in

Result table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 545,484 461,449 18.2 646,689 (15.6)
Material costs (250,944) (186,127) 34.8 (238,554) 5.2
Purchases (333,763) (276,334) 20.8 (336,725) (0.9)
Personnel costs (5,832) (6,489) (10.1) (7,040) (17.2)
Other overheads (36,445) (14,015) 160.0 (13,532) 169.3
Operating profit (81,500) (21,516) - 50,838 -
OPM (%) (14.9) (4.7) (1,028) bps 7.9 (2,280) bps
Depreciation (4,801) (4,901) (2.0) (4,681) 2.6
Interest (5,205) (3,349) 55.4 (4,941) 5.3
Other income 3,138 4,147 (24.3) 4,115 (23.7)
PBT (88,368) (25,619) - 45,331 -
Tax - - - (5,703) -
Effective tax rate (%) - -
Reported PAT (88,368) (25,619) - 39,628 -
PAT margin (%) (16.2) (5.6) (1,065) bps 6.1 (2,233) bps
Ann. EPS (Rs) (488.8) (141.7) 244.9 219.2 (323.0)
Source: Company, India Infoline Research

Net sales grow on back of high market sales
Bharat Petroleum Corporation Ltd (BPCL) reported 18.2% yoy rise in net sales to Rs545bn for Q1 FY13. Market sales at 8.5mt grew by 8.5% on a yoy basis. The higher sales were led by a robust growth in diesel (up 14.3% yoy), LPG (up 10.1% yoy) and petrol (up 4.8% yoy). Realizations for products other than the controlled products were higher on a yoy basis both on account of increase in prices and steep rupee depreciation. On a sequential basis, impact of rupee depreciation was more than offset by the fall in dollar denominated prices. During Q1 FY13, BPCL accounted for Rs36.6bn as compared to Rs34.1bn in Q1 FY12 from upstream companies in the form of discounts on purchase of crude oil, LPG and SKO. For Q1 FY13, nil payments have been received from the government as compared to Rs35.2bn in Q1 FY12.

Refining segment improves yoy
The refining profits were up by 70% yoy mainly on back of higher crude throughput, better GRM’s and a depreciated currency. The crude throughput at 5.9mt was higher on yoy basis mainly on account of a shutdown taken in Kochi refinery in the corresponding quarter last year. While other OMC’s reported inventory valuation losses (due to a declining crude price in quarter), BPCL reported a gain of Rs1.3bn on the inventory side. The favourable inventory position at the beginning of the quarter (~50% lower than normal levels) helped the company to check losses on inventory and maintain the GRM’s in positive territory.

High borrowings impact interest costs
During Q1 FY13, Government made no payments towards meeting the under recoveries of the OMC’s. Resultantly, the borrowings shot up by 24.4% over the quarter and the interest payments surged. The interest expenses at Rs5.2bn were higher by 55.4% on yoy basis while the borrowings recorded were Rs286.2bn at the end of the quarter.

Net loss at Rs88.3bn
BPCL racked up a loss of Rs88.3bn mainly owing to nil cash compensation from the government. Besides heavy interest payments, a foreign exchange loss of Rs16.1bn was recorded for the quarter (vis-à-vis a loss of Rs1.1bn in Q1 FY12). The sales mix also saw a higher quantum of HSD being sold which contributed to a higher under recovery bill for the quarter. Other income at Rs3.1bn came in 24.3% lower on yoy basis.

Key takeaways from the conference call
While Mumbai refinery earned a GRM of US$1.58/bbl for Q1 FY13, Kochi refinery earned a GRM of US$3.98/bbl. Bina refinery did a throughput of 1.4mt and clocked a GRM of ~US$2/bbl in the quarter. 
On the E&P side, management guided for a capex plan of US$300mn in FY13 and US$400mn in FY14. The final investment decision for the two train LNG project in Mozambique is expected by 2013.
On the refining and marketing side, company informed of an estimated capex of ~Rs23bn out of which Rs8bn would be spent on CCR project, Rs5-6bn on cylinder procurement and rest on the Kochi refinery. In FY14, the capex could be higher on back of ~Rs17-21bn to be spent on Kochi refinery expansion.
Total investments in Bina till date are to the tune of ~Rs31bn (Rs8.9bn equity;Rs9.4bn warrants; Rs13.5bn loans)
BPCL is yet to receive Rs24bn sanctioned by the government towards the under recovery borne by the company for FY12. Company is scheduled to receive the amount in coming days.

E&P upsides priced in; Maintain MP
OMCs have been plagued with a lot of uncertainties such as 1) varying crude oil prices, 2) depreciating rupee, 3) sporadic cash flows from the government, etc. However, in this scenario, BPCL with its huge discoveries in its international blocks has cushioned itself. Furthermore, its refining capacity has also increased with commencement of Bina refinery. Expansion of the Kochi refinery will only improve the scenario further. Nevertheless, these upsides seem to have been adequately priced in with a more than 20% outperformance as compared to HPCL and IOC. We retain our Market Performer rating with a 9-month price target of Rs380.

Cost analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Material costs 46.0 40.3 567 36.9 912
Purchases 61.2 59.9 130 52.1 912
Personnel Costs 1.1 1.4 (34) 1.1 (2)
Other overheads 6.7 3.0 364 2.1 459
Total costs 114.9 104.7 1,028 92.1 2,280
Source: Company, India Infoline Research

Financial summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues 1,516,395 2,119,730 2,113,111 2,185,335
yoy growth (%) 24.0 39.8 (0.3) 3.4
Operating profit 35,460 38,669 39,653 41,366
OPM (%) 2.3 1.8 1.9 1.9
Pre-exceptional PAT 15,467 13,113 16,312 16,227
Reported PAT 15,467 13,113 16,312 16,227
yoy growth (%) 0.6 (15.2) 24.4 (0.5)

EPS (Rs) 21.4 18.1 22.6 22.4
P/E (x) 16.5 19.4 15.6 15.7
Price/Book (x) 1.8 1.7 1.5 1.4
EV/EBITDA (x) 11.7 11.8 12.6 10.7
Debt/Equity (x)

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