Buy Bharat Petroleum Limited For Target Rs. 608 - Elara Capital
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Diversification focus
Q3 PAT at INR 34bn, up 73% YoY
Bharat Petroleum (BPCL IN) posted an adjusted PAT of INR 34.0bn versus our estimates of INR 46.4bn, up 73% YoY (down 60% QoQ). YoY earnings growth was primarily led by revival in retail fuel margin. But earnings fell QoQ due to lower GRM and weaker marketing margin.
Balance sheet mostly de-levered, focus on petchem and E&P
BPCL, in Q3 earnings call, mentioned that its standalone net debt is at INR 60bn, and strong balance sheet may enable it to focus on investment in upstream (INR 320bn; in Mozambique and Brazil) and in petchem (INR 540bn; Bina Ethylene cracker and Kochi PP plant).
GRMs surprise positively; margins to sustain above mid-cycle level
Reported Q3 GRM was USD 13.3/bbl (Elara: USD 11.6/bbl) versus USD 15.9/bbl in Q3FY23 and USD 18.5/bbl in Q2FY24. Expect GRM to be above mid-cycle level due to tighter refining product supply in CY24.
Diesel margin down QoQ; gasoline margin strong
Per our calculations, Q3FY24 retail diesel margin was INR 0.5/liter from INR 2.3/liter in Q2FY24 and INR 3.9/liter loss in Q3FY23. Gasoline margin was INR 7.8/liter versus INR 6.5/liter in Q2FY24 and INR 12.6/liter in Q3FY23. Marketing sales volume grew 1% YoY in Q3. Expect benevolent crude price in CY24E at ~USD 80/bbl due to 40mn tonne LNG export capacity addition globally, which may hit oil demand.
Valuation: Upgrade to Buy; TP raised to INR 608
We raise FY26E EPS 30% and thus TP to INR 608 (from INR 396) on better GRMs at USD 10.0/bbl (from USD 7.5/bbl) and higher diesel/gasoline margin at INR 3.5/liter (from INR 1.0/liter) on tighter refining supply outlook and benevolent crude prices at ~USD 80/bbl.
We upgrade BPCL to Buy from Accumulate on value unlock from Mozambique project commencement in CY24 and marketing margin visibility at ~USD 80/bbl crude price. We value refining at 5.0x (unchanged) and marketing at 4.5x (from 4.0x) FY26E EV/EBITDA and Mozambique at USD1/mcf of reserves.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
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