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Mixed quarter; Outlook positive

Bharat Petroleum Corporation Ltd is one of India’s leading oil & gas companies. It operates refineries located in Kochi, Mumbai, Bina and Numaligarh. The company’s marketing infrastructure consists of installations, retail outlets, depots and LPG distributors.

* Q1FY22 standalone revenue fell 9.2% QoQ (+77.2% YoY) due to decline in market (-13.8% QoQ) and export sales (-50.8% QoQ). The throughput also decreased 18.5% QoQ to 6.8MMT on slowness in demand.

* EBITDA margin contracted 150bps QoQ to 3.6% (-410bps YoY) on higher raw material prices and foreign exchange loss. Adjusted PAT fell 68.1% QoQ to Rs. 1,579cr, after adjusting for one-off staff expenses.

* Recent decline in crude oil prices, company’s focus on clean energy, and acceleration in vaccination drive should boost company’s performance in the medium to long-term. Hence, we reiterate our BUY rating with a revised target price of Rs. 567 based on SOTP.

COVID second wave impacts revenue

In Q1FY22, revenue fell by 9.2% QoQ to Rs. 89,687cr (+77.2% YoY) due to slowness in domestic demand because of second wave of COVID. Its domestic sales reduced by 13.8% QoQ to 9.6MMT (+27.9% YoY) and export sales declined by 50.8% QoQ to 0.31MMT. Also. the company’s refinery throughput fell 18.5% QoQ to 6.8MMT (+33.1% YoY) due to negative impact of lockdown in many Indian states.

Margins declined due to higher operating expense

In Q1FY22, the Company reported GRM of $4.1/bbl (vs. $6.6/bbl in 4QFY21 and $0.4/bbl in Q1FY21), EBITDA fell 35.7% QoQ to Rs. 3,253cr (-16.9% YoY), as EBITDA margin contracted 150bps QoQ to 3.6% (-410bps YoY) due to rise in raw material prices and foreign exchange losses partially offset by lower employee cost. Reported PAT reduced 87.4% QoQ to Rs. 1,502cr, including one-time employee based expense worth Rs. 77cr. On adjusted basis, Adj PAT declined 68.1% QoQ.

Key concall highlights

* Capex guidance for FY22 is around Rs. 10,000cr, including Rs, 2,600cr in refinery, Rs. 950cr in petchem, Rs. 3,300cr in marketing, Rs. 1,300 in equity investments, and remaining in other projects. Company spent around Rs. 2,417cr for BORL and Rs. 400cr for BPRL in 1QFY22.

* The company added 130 retail outlets during the quarter. MS BP projects and 2 units of PDPP at Kochi refinery has been commissioned.

* On June 30, 2021, total borrowings reduced to Rs. 21,577cr from Rs. 26,000cr in Q4FY21. Debt-to-equity ratio improved to 0.4x compared to 1.0x in Q1FY21.

Valuation

In 1QFY22, the company business saw a small impact from the second wave of COVID through lockdown in most part of India. However, GRM and refinery throughput is improving compared to prior year period with opening up of lockdowns and acceleration in vaccination drive. This is strongly supported by decline in oil prices due to Delta variant, weak economic data in China & United States, and increase in OPEC+ output.

The company is also moving towards clean energy through EV charging stations pilot. These macro factors and new strategies should boost company’s performance in medium to long-term. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 567 using SOTP valuation.

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