Q2FY24 Review: BPCL: Solid quarter led by refineries

31 Oct 2023 , 10:47 AM

BPCL’s Q2FY24 PAT of Rs85bn (vs loss YoY) was well ahead of forecasts as GRMs surprised; the refineries processed ~40% Russian oil and maximized HSD production, which was reflected in GRMs (US$18.5/bbl vs US$16.8/bbl YoY); marketing volumes were up 7% YoY while margins moderated QoQ; We upgrade FY24 PAT by ~45%, and see further upside if oil remains weak. Timelines on proposed rights issue are unclear; the valuations are cheap even on normalised operating environment as seen in FY25. 

Beats estimates: 

BPCL’s Q2FY24 standalone PAT of Rs85bn was ahead of estimates on the back of stronger than expected GRMs combined with marketing inventory gain of Rs15bn. The company processed 7% more oil YoY at its refineries (utilisation 106%), and reported blended GRM of US$18.5/bbl vs US$16.8/bbl YoY; Mumbai/Kochi/Bina reported GRMs of US$14.5/19.7/28.2/bbl (Russian oil processing – ~40%), leading to OPF vs SG benchmark of US$9.6/bbl. Overall sales volumes were up by 7% YoY (MS/HSD- 5%/1% YoY respectively). In the consolidated P&L, BPCL booked Rs3bn of one off provision towards the stranded Mozambique LNG project (10% stake). 

Reiterates mega capex plan: 

During the post earnings conf call, BPCL stated that -1) it expects healthy volume growth in auofuels driven by petrol; 2) its refineries are processing ~40% Russian oil; such benefits are visible in GRMs; 3) the Kochi PDPP unit operated at 73% utilisation; it enhanced the overall GRMs by US$0.55/bbl, and there is a scope for further gains; 4) the company’s Rs1.5trillion capex plan is intact, which includes in Bina refinery expansion and petchem project, investments in RE, marketing infra, upstream and CGDs; 5) Mozambique project start up is sometime away; 6) it is seeking MoPNG and SEBI approval for the rights issue; 7) there are no plans to monetise CGD assets. 

Upgrade EPS: 

On back of H1 performance, analysts of IIFL Capital Services upgrade BPCL’s FY24 PAT by ~45%, and see further upside, if oil remains weak; FY25 earnings will see a dip, as we assume normalised earnings environment; US$1/bbl GRM swings EPS by ~8%, while paise50/ltr marketing margin change leads to ~5% swing in EPS. Valuations are cheap; analysts of IIFL Capital Services maintain BUY.