01-01-1970 12:00 AM | Source: Emkay Global Financial Services Ltd
Buy Bharat Petroleum Corporation Ltd For Target Rs.415 - Emkay Global
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Earnings beat estimates amid higher inventory gains, GRM steady

* BPCL reported Q4FY22 standalone EBITDA/PAT of Rs44.5bn/Rs21.3bn (up 4%, down 13% qoq). EBITDA/PAT beat our estimates by 38/43% due to a 12% GRM beat and 2x higher marketing inventory gains, partly offset by higher opex.

* Reported GRM came in higher at USD15.3/bbl (vs. USD13.6 est.). We believe core GRM could be ~USD10/bbl. Refinery volume was healthy at 8.12mmt or 118% utilization. Domestic sales volume growth of 6% yoy was the best among OMCs and the industry.

* Marketing inventory gain in Q4 was Rs31.8bn (vs. Rs15bn est), with BPCL’s blended margin at Rs0.65/kg (lower than Rs0.9/kg est). Implied net debt rose 25% yoy/26% qoq to ~Rs276bn (incl lease liabilities), with interest costs up 20% qoq to Rs5.3bn.

* We cut our FY23E EPS by 19%, lowering marketing margins ahead, though partly offset by higher GRMs. We reduce our Mar’23E SOTP-based TP by 10% to Rs415, reducing the core business blended FY24E EV/EBITDA multiple from 5.6x to 5.4x. Maintain Buy

 

Highlights:

BPCL’s gross profit of Rs111bn in Q4 was 22% above our estimate, though Other Expenditure rose 18% yoy/22% qoq to Rs57.4bn (16% above est). Depreciation also rose 9% qoq. The forex loss was lower than expected at Rs2.0bn, while the tax rate was higher at 29.9% due to provisions from earlier years. Petrol/diesel sales volume growth was 4%/3% yoy, better than industry numbers. For FY22, S/A EBITDA/APAT was Rs164bn/Rs88bn, down 8%/30% yoy on the back of an over 30% drop in marketing margins. Reported GRM rose from USD4.1/bbl to USD9.1/bbl. Refining throughput rose by 14% to 30.1mmt, while marketing sales volumes grew by 10% to 44.6mmt. Capex, as per PPAC data, was Rs114.5bn. The board recommended a final dividend of Rs6/sh (Rs16/sh total in FY22), implying a payout of 39% for the year.

 

Guidance:

Bina Refinery (BORL) posted a PAT of Rs8.92bn and GRM of ~USD11/bbl in FY22. The merger was in process. BPCL’s FY23 capex guidance is ~Rs100bn. The CWIP provision was in Other Expenditure. BPCL’s refining inventory gain was similar to peers (as per our estimate, it implies ~USD10/bbl of core GRM). The scheme details for the Rs200/cy PMUY subsidy are yet to come, hence it is not implemented yet. Govt subsidy outstanding was Rs2bn as of FY22-end.

 

Valuation:

We value BPCL on a SOTP basis, with investments at a 30% holdco discount. We slightly lowered the target EV/EBITDA multiple from 5.6x to 5.4x with no disinvestment premium anymore. While the current scenario is weak with negative auto-fuel margins, we maintain Buy owing to reasonable valuations and expectations of a gradual recovery in margins to normative levels. Key risks: adverse commodity/currency/polices/capex.

 

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