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Strong core refining and marketing performance supports integrated margins

BPCL's Q2FY25 results exhibited a soft financial performance where the core integrated margins were marginally higher than our expectations. The EBITDA and Adj. PAT, stood at Rs 45.5bn and Rs 24bn, respectively. The core GRM at USD5.96/bbl was strong while and the market share in diesel and motor spirits highlight the company's operational prowess. BPCL's strategic lower debt:equty amongst its peers, annual capex target of Rs130bn, and enhanced refining efficiency position it as a compelling investment, reflecting a positive outlook for sustained growth. We maintain our BUY rating with a 12-mth revised TP of Rs405/shr (earlier Rs 430).

Result Highlights

* EBITDA/Adj. PAT were Rs 45.5/24bn is down 65%/72% YoY and 20% each QoQ. This is marginally lower than our estimates and much lower than the consensus, although when we compare it on core performance its better than our estimates on both refining and marketing segment. The integrated core EBITDA margin was USD4.6/bbl vs our est of 4.3 (USD3 the prior quarter, USD7.2 a year ago), marginally higher than expectations on better marketing performance.

* The reported GRM was USD4.41/bbl (MR/KR/BR USD3.4/USD4.7/USD6.1) vs USD7.86/bbl the previous quarter (MR/KR/BR USD4.7/USD8.5/USD12.8) and USD18.5/bbl a year ago (MR/KR/BR USD14.5/USD19.7/USD28.2). As per our assumptions, the core GRM was USD5.96/bbl (USD6.6 the previous quarter, USD15.5 a year back), a USD2.4/bbl premium to the benchmark USD3.6, the best amongst Indian refiners. The assumed refining inventory loss of USD1.55/bbl (gain of USD1.26 the prior quarter and a gain of USD3/bbl a year ago). Refinery throughput was 10.28mmt (MR/KR/BR 4.1/4.4/1.7) at ~116% utilisation (115% the previous quarter, 105% a year ago).

* The core marketing EBITDA (back-calculated) was Rs2.8/ltr (Rs0.9 in the prior quarter, Rs1.3 a year back) higher than our expectations of Rs2.2/ltr. The domestic marketing throughput was 12.4mmt, up 1.6% YoY and down 5.9% QoQ (vs. the industry’s growth of 2.3% YoY and -6.4% QoQ). MS sales were 2.7mmt, up 6.4% YoY and down 1.5% QoQ, while diesel at 5.2mmt, down 1% YoY and 16% QoQ. Industry motor spirit and diesel sales were up 7.4%/0.1% YoY but down 2%/17.3% QoQ. The reported marketing adventitious/inventory loss was at Rs11.1bn. Product market share. Bharat Petroleum’s gained marginal market share of highspeed diesel and motor spirits to 25.9% and 27% respectively. Burden impact: The company has a negative buffer amounting to Rs 41.2bn as of end H1FY25, and Rs 21bn in Q2FY25 pertaining to LPG subsidy. This is in an absence of GOI receivables and the revenue to that extent has not been recognized.

* Capex as per PPAC was Rs38.5bn for Q1FY25 (Rs54.6bn in H1FY25) with target of Rs130bn for FY25. Debt at Rs215.3bn was down by Rs10.4bn YoY and up Rs63.2bn QoQ on higher capex and a decline in cashflows, despite purchase of discounted crude. H1FY25 performance: EBITDA at Rs 102bn (vs Rs 287.2bn in H1FY24) while PAT at Rs 54.1bn (vs Rs 190.2bn) and the reported GRM at USD6.1/bbl (vs USD15.4). The core integrated margins were at USD3.8/bbl vs USD9.6/bbl while the marketing EBITDA/ltr (Rs) was at 1.9 vs 4 in H1FY24.

Valuation

BPCL has Rs14bn and Rs21.4bn sensitivity to a change of Rs0.5/ltr and USD1/bbl, respectively. An expectation of dividend of 4.5/4.5/3.6% FY25e/26e/27e would be key for shareholders. The BV/share for FY25e/26e/27e is at Rs 187/202/217. At CMP, the stock trades at 7.2x/6.4x/7.1x FY25e/26e/27e EV/EBITDA and 1.7x/1.5x/1.4x P/BV (excl. investments, trades at 5.9x/3.3x/5.8 FY25e/26e/27e EV/EBITDA and 1.3x/1.2x/1.1x P/BV). We maintain a BUY rating with a target price of Rs405 valuing it on a sum-of-parts basis (core business at 7.7x EV/EBITDA and investments at Rs62).

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