IGI Logo

QoQ improvement in margins drive earnings

Our view

BPCL reported 2QFY22 above our (+7%) and street (+26%) estimates with operating profits at Rs 44.7bn (+16% YoY; 38% QoQ). The beat on our estimates stemmed primarily from stronger than expected refinery margins, offset partially marginally lower than anticipated marketing margins. As the company has discontinued the disclosure of refining inventory gain, a clear assessment of proportion of inventory gain in GRM cannot be ascertained. The improvement in GRMs was in sync with improvement in benchmark cracks as revival in transportation demand along with switch away from expensive LNG to HSD, aided cracks of both mainstay products, which constitute ~50- 60% of the production/sales. Given the strong refining margin environment, along with stable marketing margins and additional anticipated gain to BPCL from petchem products at Kochi, we maintain ADD with TP of Rs 535/sh.

Result Highlights

* 1QFY22 Profitability: The Ebitda and PAT for the quarter stood at Rs 44.7bn (+16% YoY; +38% QoQ) and Rs 26.9bn (+20% YoY; +79% QoQ). The YoY and QoQ improvement seen is on account of improvement in retail petroleum sales and margins as impact of Covid imposed lockdown receded.

* Refinery Utilization: The refining throughput improved QoQ to 7.2mmt (1Q: 6.8mmt), with refinery utilization rising to 105% (1Q: 101%), as throughput recovered along with recovery in demand. The throughout at Mumbai refinery (MR) stood at 3.5mmt and at Kochi refinery (KR) at 3.63mmt. If the demand traction continues, the throughput is expected to rise beyond 8mmt over 3Q4QFY22 (110-120%).

* Gross Refinery Margin: The GRM also improved QoQ to USD 6/bbl with MR reporting a GRM of USD 6.5/bbl & KR a GRM of USD 5.6/bbl. While the GRM at MR was aided by presence of value add (LOBS) units, that at KR suffered due to higher OSP from Saudi Aramco.

* Marketing sales: Total Domestic products sales stood at 9.9mmt (+11% YoY; +3% QoQ), vs industry growth of 6.4% YoY during the quarter. MS sales reported a growth of 15% YoY (industry: 11.7% YoY) and HSD sales growth of 10% YoY (industry: 8.8% YoY), with market share gains across MS and HSD in the 2Q

* Marketing margins: As per our assessment, the marketing margin during the quarter stood at Rs 6505/t (1Q: Rs 5741/t), primarily on healthy MS and HSD margins. The marketing inventory gain stood to the order of Rs 2.3bn (1QFY22: gain of Rs 8.0bn).

Valuation

AT CMP BPCL is trading at a P/E of 10x FY24, vs 13x FY24e, implied by our target price. We value BPCL at Rs 535/sh, on SOTP basis, with an equity value of Rs 445/sh for the standalone business (incl. listed & unlisted current investments), Rs 64/sh for investment in BORL Refinery and Rs 27/sh towards upstream investments.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer