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Strong refining margins shore-up earnings

Our View

BPCL’s 4QFY23 reported Ebitda stood at Rs 111.5bn (+91% YoY; +163% QoQ), above our and street estimates on above estimated GRMs at USD 20.6/bbl, offset partially by slightly lower than estimated marketing margins at Rs 4821/ton. As we write, while Petrol & Diesel margins have expanded to Rs 11-12/ltr; the Singapore benchmark GRM has weakened to USD 3.6/bbl (4QFY23: USD 8.2/bbl), on moderation in MS and HSD crack spreads. While FY23 was marked by volatility in retail marketing margins we expect the same to normalize over FY24-25e and maintain ADD with a TP of Rs 430/sh

Result Highlights

* Profitability: The Ebitda and PAT for the quarter stood at Rs 111.5bn (+91% YoY; +163% QoQ) and Rs 64.7bn (+172% YoY; +231% QoQ). Due to robust earnings in the quarter, the FY23 Ebitda and PAT stood in black at Rs 109.2bn (-38.4%) and Rs 18.4bn (-83% YoY).

* Refinery Utilization: The refining throughput stood YoY & QoQ higher at 10.6mmt (+5% YoY; +13% QoQ), implying a utilization of 120%. The throughout at Mumbai refinery (MR) stood at 4.1mmt, at Kochi refinery (KR) at 4.52mmt and at Bina refinery (BR) at 2.04mmt.

* Gross Refinery Margin: GRM for BPCL stood QoQ and YoY higher at USD 20.6/bbl (FY23: USD 20.24/bbl), where GRM for MR stood at USD 15.7/bbl (FY23: USD 15.2/bbl), for KR stood at 22.5/bbl (FY23: USD 21/bbl) and for BR at USD 26.1/bbl (FY23: USD: 28.2/bbl). Presence of Russian crude in the crude diet helped BPCL score a stronger refining margins for the quarter and also FY23.

* Marketing sales: Total Domestic products sales stood at 12.91mmt (+9% YoY; +1% QoQ), vs industry at (+5.6% YoY; +0.8% QoQ), during the quarter. MS sales stood at 2.4mmt (+13% YoY and -1% QoQ) vs industry sales at 8.7mmt( +9.8% YoY & - 1.5% QoQ) and HSD sales at 5.96mmt (+15% YoY & -1% QoQ) vs industry sales at 22mmt (+6.7 % YoY & -2.5% QoQ), respectively.

* Marketing margins: As per our assessment, the retail marketing margin during the quarter stood at Rs 4821/t (FY23: Rs (858)/t) as retailing losses for HSD moderate. The marketing inventory loss stood at Rs 19bn (FY23: loss of Rs 34.2bn).

Valuation

We maintain our ADD rating on BPCL with a revised TP of Rs 430/sh (from Rs 410/sh), as we make adjustment to our estimates. We value BPCL on SOTP basis, with an equity value of Rs 403/sh for the standalone business (incl. listed & unlisted current investments) and Rs 27/sh towards upstream investments. AT CMP BPCL is trading at a P/BV of 1.3x and P/E of 7.0x FY25e

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