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Strong performance, marketing core margins drives the integrated margins and earnings

Our View

BPCL's Q4FY24 results exhibit a commendable financial performance, with a substantial YoY surge in EBITDA and Adj. PAT, standing at Rs 92.1bn and Rs 55.7bn, respectively. The core GRM at USD12.5/bbl and strong market share in diesel and motor spirits highlight the company's operational prowess. BPCL's strategic reduction in debt, annual capex of Rs110bn, and enhanced refining efficiency position it as a compelling investment, reflecting a positive outlook for sustained growth, to also be supported by recent announcement of a 1:1 bonus issue. We retain our BUY rating with a 12-mth TP of Rs900.

Result Highlights

* EBITDA/Adj. PAT were Rs 92.1/55.7bn is down 17.4%/26.4% YoY but up 48%/64% QoQ. This is marginally lower than our estimates but better than the consensus. There was an impairment loss of Rs 18bn for BPCL's subsidiary, BPRL (Rs 13.6bn in Q4FY23). The reported GRM was USD12.5/bbl vs USD13.4/bbl the previous quarter and USD20.6/bbl a year ago. As per our assumptions, the core GRM was USD12/bbl (USD14 the previous quarter, USD22.1 a year back), a USD4.7/bbl premium to the benchmark USD7.3, the best amongst Indian refiners. The assumed refining inventory gain was USD0.5/bbl (loss of USD0.6 the prior quarter and a loss of USD1.5/bbl a year ago). Refinery throughput was 10.36mmt at ~119% utilisation (110.8% the previous quarter, ~122% a year ago)

* The integrated core EBITDA margin was USD7.8/bbl vs our est of 6.4 (USD4.9 the prior quarter, USD10.3 a year ago), surpassed expectations on strong core marketing performance.

* The core marketing EBITDA was Rs3.2/ltr (negative Rs0.3 the prior quarter, positive Rs1.3 a year back) and our expectations of Rs1.6/ltr. The domestic marketing throughput was 13.2mmt, up 2.1% YoY and 2% QoQ (vs. the industry’s growth of 5.6% YoY and 4.3% QoQ). MS sales were 2.6mmt, up 7.1% YoY and 2% QoQ, while diesel at 5.9mmt, down 1% YoY and up 1% QoQ. Industry motor spirit and diesel sales were up 8.5%/4.2% YoY and 2%/0.6% QoQ. The reported marketing adventitious/inventory loss was at Rs7.65bn. Product market share. Bharat Petroleum’s market share of high-speed diesel and motor spirits market shares to 25.9% and 27.2% respectively.

* Capex as per PPAC was Rs29.8bn (Rs110bn in FY24); exceeding FY24 target of Rs100bn. Debt at Rs187.7bn was sharply down Rs170.9bn YoY but up Rs27.5bn QoQ.

* FY24 performance. EBITDA at Rs 441.6bn (vs Rs 109.6bn last year) while Adj. PAT at Rs 284.7bn (vs Rs 32.3bn last year) and the reported GRM at USD14.1/bbl (vs USD20.2). The core integrated margins were at USD7.9/bbl vs USD3.1/bbl the last year while the marketing EBITDA/ltr (Rs) was at 2.8 vs negative 4.4 last year.

Valuation

BPCL has Rs22.1bn and Rs24.2bn sensitivity to a change of Rs0.5/ltr and USD1/bbl, respectively. An expectation of dividend of 2.9%/2.9% FY25e/26e would be key for shareholders. The BV/share for FY25e/26e is at Rs 389/428 and the debt: equity is least amongst OMCs at 0.3x for 25e/26e. At CMP, the stock trades at 6.9x/6.6x FY25e/26e EV/EBITDA and 1.6x/1.4x P/BV (excl. investments, trades at 5.7x/5.5x FY25e/26e EV/EBITDA and 1.3x/1.2x P/BV). We maintain a BUY rating with a target price of Rs900 valuing it on a sum-of-parts basis (core business at 8x EV/EBITDA and investments at Rs129).

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