IGI Logo

Earnings miss on excise loss in marketing; robust GRMs

* BPCL posted Q3FY22 standalone EBITDA/PAT of Rs42.5bn/Rs24.6bn, down 5%/9% qoq. EBITDA missed our estimate by 27% due to lower marketing income, which was affected by a one-time inventory loss arising from a cut in auto-fuel excise duty in Nov’21.

* Reported GRM of USD9.7/bbl was better than our USD7.5 est. Refinery utilization was healthy at 116%. Total marketing volumes beat by 6%, with domestic sales flat yoy vs. 4% decline for the industry. BPCL fared the best in marketing and auto-fuel sales in Q3.

* Marketing inventory loss was Rs14.2bn, while blended margin fell 11% qoq to Rs5.8/kg (17% miss), which includes the excise hit. Gross debt (incl. lease liabilities) was up 11% qoq to Rs322.5bn. BPCL’s opex was in line. We estimate core GRM/EPS of USD8/Rs14.

* We raise FY22/FY23/FY24 EPS estimates by 7%/3%/1%, building in higher GRMs, and roll over valuations from Dec’23E to Mar’24E. We raise our Mar’23E SOTP-based TP by 1% to Rs515 (factoring in slightly higher capex). Retain Buy.

Highlights: Other expenditure rose 19% yoy/8% qoq to Rs47.0bn, while employee costs were up 12%/16% to Rs8.92bn. Other income was down 8% qoq to Rs6.83bn. Interest costs rose by 13% qoq to Rs4.46bn, while the forex loss stood at Rs357mn. Tax rate came in at 25.0%. Mumbai/Kochi reported GRM of USD9.5/9.9/bbl. Refining volumes rose 11% qoq to 8.0mmt. Petrol/diesel sales volumes were up 4%/down 3% yoy. Q3 capex was Rs27.9bn, while the O/S subsidy was Rs2.0bn. The board declared a second interim dividend of Rs5/sh.

Guidance: The excise duty cut-led hit on marketing was a one-off. It did not impact GRMs, which were driven by cracks. BPCL has commissioned the 3rd acrylate unit of PDPP Kochi, and the plant is fully commissioned now. It reached 70-80% utilization in Jan’22-end. In lieu of polyols, it will do a DFR for a PPU. USD1/bbl of GRM from PDPP is expected, but currently crude prices are up while petchem margins weaker. The learning from PDPP was that niche petchem with high complexity is not very attractive and would need a partner with expertise. Hence, BPCL is planning to go for commodity petchem, such as PP and PE (in Bina). It would invest Rs220bn in CGD, including Rs100bn for the newly won. It has 303 In & Out stores and 1,000 more to be set up. The Bina Refinery recorded USD9.8/bbl GRM in Q3, with Rs3.69bn PAT. BPCL is targeting 50% RO solarization by CY24, which would lower grid power usage by 50%. Rs300bn would be petchem capex, if the DFRs are successful. The LPG subsidy is very less but mgmt did not comment on budget subsidy. BPCL’s ethanol blending is 7.5% for 9MFY22. It is awaiting clarity on the budget blending announcement.

Valuation: We value BPCL on a SOTP basis at 6.3x blended Mar’24E EV/EBITDA, BORL at 5x and investments with a 30% holdco discount. Key risks are adverse petroleum prices/margins/currency, project delays and disinvestment uncertainties.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

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