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Better-than-estimated performance led by higher GRM

* BPCL’s reported GRM at USD16.8/bbl came in above our estimates while implied marketing loss was at INR0.6/lit (-INR9.2/lit in 1QFY23). Refining throughput stood at 8.8mmt (9.7mmt in 1QFY23) while marketing sales volume excluding exports was at 11.4mmt (in line with our estimates; 11.8mmt in 1QFY23).

* Singapore GRM has turned upside down and was at USD2.6/bbl in Oct’22 from a record high of USD21.7/bbl in 1QFY23. It stood at USD7.1/bbl in 2Q.

* In the marketing segment, marketing sales volume excluding exports came in at 11.4mmt (in line; +15% YoY). However, OMCs are estimated to be generating gross marketing margin of INR10.1 per liter on petrol and a loss of INR5.6 per liter on diesel in 3QFY23YTD.

* The government recently approved a one-time grant of INR55.8b to compensate for under-recoveries incurred on sale of domestic LPG during FY22 and the current period, which has been duly recognized by the company in 2QFY23.

* Factoring in the aforementioned and BPCL’s outperformance in 2QFY23, we raise our FY23E EBITDA/EPS to INR61b/INR2.1 from INR2b/-INR20, respectively, (keeping our FY24E EBITDA/EPS unchanged).

* There is no update on the divestment roadmap for BPCL now. The stock is trading at 1.1x FY24E P/BV, and we value it on 1.2x FY24E P/BV to arrive at our TP of INR331. Maintain Neutral.

EBITDA beat; GRM higher than estimate

* Refining throughput was lower than our estimate at 8.8mmt (+23% YoY/ -9% QoQ). Reported GRM came in higher than our estimate at USD16.8/bbl (v/s our estimate of USD4.4 and USD27.5 in 1QFY23).

* Marketing volumes excluding exports were in line with estimate at 11.4mmt (+15% YoY, -3% QoQ). Marketing loss (inc. inv.) stood at INR0.6/lit (v/s loss of INR9.1/lit in 1QFY23 and marketing profit of INR6.7/lit in 2QFY22).

* BPCL’s resultant EBITDA stood at INR14.3b (v/s our est. operating loss of INR80.3b). Net loss came in at INR3b (v/s our est. net loss of INR84.1b).

* For 1HFY23, BPCL’s operating loss was at INR22.2b (v/s EBITDA of INR63b in 1HFY22), with net loss also at INR65.7b (v/s PAT of INR46.1b in 1HFY22). Marketing sales volume excluding exports rose 19% YoY to 23.2mmt, with marketing loss at INR4.8/lit (v/s marketing profit of INR6.2/lit in 1HFY22). Refining throughput was up 32% YoY to 18.5mmt, with reported GRM at USD22.2/bbl (v/s USD5.1/bbl in 1HFY22).

Valuation and view

* The estimated capex for FY23 stands at INR100b (Refining: INR13b; Marketing: INR23b; Petchem: INR26b; equity investment in JV subsidiary: INR18b; and the remainder in other smaller projects, including CGDs) and is expected to be similar in FY24 as well.

* Softening of crude oil prices may bode well for the stock. However, GRMs have softened further and may be a cause of concern if they correct further. BPCL trades at 1.1x FY24E PBV, and we value the stock at 1.2x FY24E P/BV to arrive at our TP of INR331. Reiterate Neutral.

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