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Strong reported GRMs, core GRMs highest amongst Indian refiners; marketing disappoints

Our View

BPCL's Q3FY24 results underscore a commendable financial rebound, with a substantial YoY surge in EBITDA and Adj. PAT, standing at Rs 62.3bn and Rs 34bn, respectively. The robust core GRM at USD14/bbl and strengthened market share in diesel and motor spirits highlight the company's operational prowess. Despite sequential challenges reflected in QoQ declines, BPCL's strategic reduction in debt, targeted capex of Rs100bn, and enhanced refining efficiency position it as a compelling investment, reflecting a positive outlook for sustained growth. We retain our BUY rating with a 12-mth TP of Rs620.

Result Highlights

* BPCL exhibited robust financial performance in Q3FY24 with EBITDA/Adj. PAT showing remarkable YoY growth of 47%/73%, totaling Rs 62.3/34bn. This is marginally lower than our estimates but better than the consensus. The reported GRM was USD13.35/bbl vs USD18.5/bbl the previous quarter and USD15.9/bbl a year ago. As per our assumptions, the core GRM was USD14/bbl (USD15.5 the previous quarter, USD18.3 a year back), a USD8.6/bbl premium to the benchmark USD5.4, the best amongst Indian refiners. The assumed refining inventory loss was USD0.6/bbl (gain of USD3 the prior quarter, a loss of USD2.4/bbl a year ago). Refinery throughput was 9.9mmt (MR/KR/BR 3.1/4.7/2.1) at ~110% utilisation (105% the previous quarter, ~106% a year ago).

* The integrated core EBITDA margin was USD4.9/bbl vs our estimates of 7.3 (USD7.2 the prior quarter, USD4.7 a year ago). It was impacted by weak core marketing performance on HSD margins.

* The core marketing EBITDA was negative Rs0.3/ltr (Rs1.3 the prior quarter, negative Rs2 a year back). The domestic marketing throughput was 12.9mmt, up 1% YoY 6% QoQ (vs. the industry’s growth of 2% YoY and 5.5% QoQ). MS sales were 2.5mmt, up 3.7% YoY and 1% QoQ, while diesel at 5.87mmt, down 3% YoY and up 12% QoQ. Industry motor spirit and diesel sales were up 4.7%/1% YoY and 1.4%/13.5% QoQ. The reported marketing adventitious/inventory loss was Rs3.7bn. Product market share. Bharat Petroleum’s market share of high-speed diesel and motor spirits improved QoQ at 25.8% and 27.2% respectively.

* Debt position improved significantly, standing at Rs160.2bn (0.23x), reflecting a considerable reduction of Rs242.4bn YoY and Rs65.5bn QoQ. Despite a forex loss of Rs290mn, the company showcased resilience in its financial stability.

* 9MFY24 performance indicated a substantial recovery, with EBITDA at Rs349.4bn and PAT at Rs224.5bn. The FY24 capex target remained at Rs100bn, highlighting BPCL's commitment to growth and efficiency. The overall performance positions BPCL optimistically for the future, leveraging its refining capabilities and market presence.

Valuation

BPCL has Rs20.2bn and Rs23.5bn sensitivity to a change of Rs0.5/ltr and USD1/bbl, respectively. An expectation of higher dividend in FY24 (8.9% yield), 4.4%/4% FY25e/26e would be key for shareholders, compensating lower dividend of FY23. The BV/share for FY25e/26e is at Rs 360/387 and the debt: equity is least amongst OMCs at 0.4/0.3/0.3x for FY24e/25e/26e. At CMP, the stock trades at 5.9x/6.5x FY25e/26e EV/EBITDA and 1.4x/1.3x P/BV (excl. investments, trades at 4.8x/5.3x FY25e/26e EV/EBITDA and 1.1x/1.0x P/BV). We maintain a BUY rating with a target price of Rs620 valuing it on a sum-of-parts basis (core business at 6.5x EV/EBITDA and investments at Rs118).

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