BPCL (Q3 FY13)

With recent favorable policy action and cushion from exposure in quality upstream assets, BPCL remains the best bet in OMC’s and we upgrade to BUY with a 9-month target price of Rs450.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs387, Target Rs450, Upside 16.2% 
  • Net sales for Q3 FY13 rise 6% yoy driven by 5.3% yoy rise in domestic sales and 3.2% yoy increase in product realizations
  • Upstream companies shared under recovery burden worth Rs36bn in Q3 FY13 v/s Rs35.7bn in Q3 FY12
  • Throughput was lower by 9.5% yoy at 5.5mt. GRM for the quarter was at US$4.78/bbl sequentially down by $1.68/bbl qoq in line with the weakened product cracks as exhibited by Singapore margins. However on yoy basis the GRM improved by US$2.09/bbl
  • Net profit of Rs16.5bn was reported for the quarter
  • With recent favorable policy action and cushion from exposure in quality upstream assets, BPCL remains the best bet in OMC’s and we upgrade to BUY with a 9-month target price of Rs450.
Result table
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 623,687 588,522 6.0 568,879 9.6
Material costs (244,533) (226,295) 8.1 (232,642) 5.1
Purchases (327,845) (288,574) 13.6 (267,296) 22.7
Personnel costs (5,952) (4,797) 24.1 (7,345) (19.0)
Other overheads (22,484) (31,918) (29.6) (7,715) 191.4
Operating profit 22,873 36,938 (38.1) 53,880 (57.5)
OPM (%) 3.7 6.3 (261) bps 9.5 (580) bps
Depreciation (4,657) (4,667) (0.2) (3,983) 16.9
Interest (5,758) (5,174) 11.3 (4,117) 39.9
Other income 4,018 4,326 (7.1) 4,568 (12.0)
PBT 16,476 31,422 (47.6) 50,348 (67.3)
Adjusted PAT 16,476 31,396 (47.5) 50,348 (67.3)
Adj. PAT margin (%) 2.6 5.3 (269) bps 8.9 (621) bps
Reported PAT 16,476 31,396 (47.5) 50,348 (67.3)
Ann. EPS (Rs) 91.1 173.7 (47.5) 278.5 (67.3)
Source: Company, India Infoline Research

Net sales grow by 6% on back of growth in product sales and realizations
Bharat Petroleum Corporation Ltd (BPCL) reported 6% yoy rise in net sales to Rs623.7bn for Q3 FY13. The growth was on the account of 5.3% yoy rise in domestic sales and 3.2% yoy increase in product realizations. Budgetary support to the topline was seen at Rs59.8bn vis-à-vis Rs69.9bn in corresponding quarter last year and sans the government payout the growth in topline was higher at 8.7% yoy. Total product sales for the quarter were recorded at 9.27mmt, implying a 3.1% yoy growth mainly led by 5.3% growth in domestic sales. Amongst the products MS and HSD segments grew by a healthy 8.7% yoy and 7.9% yoy respectively whereas de-growth was recorded in LPG (-11.2% yoy) and SKO (-9.3% yoy) segments. For the first nine months of the FY13 the total budgetary support to BPCL has been Rs132.2bn (Rs105.2bn in 9-months FY12) and discounts from upstream companies has been Rs108.8bn (Rs86.2bn in 9-months FY12). The net under recoveries at end of nine months of FY13 stand increased to Rs59.2bn from Rs36.5bn in same period last year.

Quarterly GRM’s decline sequentially in line with weakness in Singapore GRM’s
The GRM’s for the quarter declined by US$1.68/bbl in line with the sequential weakness in the products cracks. However the GRM’s improved by US$2.1/bbl on a yoy basis. The quarterly refining profits were higher by 68.6% yoy despite a fall in crude throughput (9.5% yoy) mainly on back of 1) 78% yoy higher gross refining margins 2) ~7% yoy depreciation in Rupee against the dollar. Notably, the refining margins have benefited by ~US$2/bbl in FY13 on back of lesser octroi payments (octroi on net realization versus gross realizations previously) since August 2012. 

Net profit at Rs16.5bn
BPCL reported a profit of Rs16.5bn declining by 47.5% yoy and 67.3% qoq. The interest expenses continued to surge and higher siphon away significant part of refining profits. Interest expenditure at Rs5.76bn was higher by 11.3% yoy and 39.9% qoq. On capex for modernization of Kochi refinery, management guided for ~Rs140bn spread over ~4 years with bulk of the spending starting from FY15. 

E&P FID nearing and recent policy moves incrementally favorable; Upgrade to BUY
While the OMC’s have been plagued with uncertainties surrounding the subsidy payouts and have witnessed sporadic cash flows, BPCL’s venture into the E&P segment is a welcome move. The project execution in E&P is still far but the with the Final investment decision (FID) nearing for its upstream asset in Mozambique some monetary crystallization of upstream assets is expected. Additionally on the marketing side, recent policy steps are expected to be incrementally positive. BPCL remains our best bet in the OMC’s and we upgrade it to BUY with a 9-month price target of Rs450.

Cost analysis
As a % of net sales Q3 FY13 Q3 FY12 bps yoy Q2 FY13 bps qoq
Material costs 39.2 38.5 76 40.9 (169)
Purchases 52.6 49.0 353 47.0 558
Personnel Costs 1.0 0.8 14 1.3 (34)
Other overheads 3.6 5.4 (182) 1.4 225
Total costs 96.3 93.7 261 90.5 580
Source: Company, India Infoline Research

Key takeaways from the conference call
  • During 9m FY13, Bina refinery clocked a throughput of 4.12mn tons (90% utilization) and earned a GRM of US$5/bbl. Cumulative net loss for the 9-months was at Rs9bn. In Q3 FY13, GRM was at US$7/bbl and loss was of Rs1bn.
  • Numaligarh refinery throughput for 9m FY13 was at 1.8mn tons and it clocked a GRM of US$7/bbl including excise duty benefits. The company registered a loss of Rs900mn.
  • At the Mozambique block, the company has planned 3 exploratory wells in 7 appraisal wells in FY14. Additionally, 1 exploration and 4 appraisal wells are planned in Brazil. Cumulative investment in these blocks is estimated to be US$350mn in FY13 and US$ 300mn in FY14. Reserve certification for Mozambique block is expected to be completed later this year or early next year.
  • The current losses at the Bina refinery have prompted the promoters to invest more equity in the company. While the listing is still on the cards, the timing is uncertain.
  • BPCL Kochi refinery is is ready to take LNG and expects supply to commence from March 2013 to the tune of 0.2-0.5mn tons.
Valuation Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 2,119,730 2,305,881 2,473,846 2,631,886
yoy growth (%) 39.8 8.8 7.3 6.4
Operating profit 38,669 42,416 47,595 53,250
OPM (%) 1.8 1.8 1.9 2.0
Pre-exceptional PAT 13,113 20,832 23,602 27,702
Reported PAT 13,113 20,832 23,602 27,702
yoy growth (%) (15.2) 58.9 13.3 17.4

EPS (Rs) 18.1 28.8 32.6 38.3
P/E (x) 21.3 13.4 11.9 10.1
Price/Book (x) 1.9 1.7 1.5 1.3
EV/EBITDA (x) 12.9 12.4 11.0 9.9
Debt/Equity (x) 1.5 1.5 1.3 1.2
RoE (%)

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