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BPCL logged Q3FY24 EBITDA of Rs62.5bn (Emkay: Rs28.1bn), primarily driven by higher-than-expected reported GRM of USD13.4/bbl (vs. our estimate of USD6.5/bbl) that was led by discounted Russian crude, elevated diesel spreads, and operational efficiencies. Marketing margins were largely in-line, while SA PAT came in at Rs34bn. Management reiterated its capex plans of Rs1.7trn up to CY28, with Bina expansion, Kochi PPU, and Mozambique E&P being key projects. Capex target for FY25 is Rs150bn, while Mgmt envisages closure of the rights issue by Mar-24 (subject to approval by the MOPNG). We remain constructive on BPCL, on a steady marketing outlook as general elections close in, and amid a healthy refining environment. We raise FY24E EPS by 29% and FY24E/25E EPS by 13-14% each, on better GRMs and below operating-line adjustments. We retain BUY, and raise Dec-24E TP by 10% to Rs600/sh.

Result Highlights

Refinery throughput rose 5% QoQ to 9.9mmt (utilization at 112%). GRM for the Mumbai refinery fell to USD7.9/bbl (due to shutdown), Kochi’s stood at USD14.0/bbl, while Bina’s came in at USD20/bbl. Marketing inventory loss was Rs3.7bn in Q3 (vs Rs4.3bn built-in by us), but blended marketing margin at Rs4.1/kg slightly missed our estimate by 3%. Domestic sales volume rose 1% YoY vs. 2% for the industry, while overall volumes came at a marginal 1% beat. Petrol/diesel rose 4%/fell 3% YoY vs. industry’s growth of 5%/1%. Opex was 9% higher than estimate at Rs73.3bn, up 18% QoQ due to Rs2bn one-off provision in employee expense. Interest cost fell 35% QoQ, while D/A rose 14%. Gross debt fell 29% QoQ to Rs160bn, as of end-Dec ’23. 9MFY24 capex is Rs80.3bn.

Management KTAs

The CMD again highlighted Project Aspire, which entails capex of Rs1.5-1.7trn over the next 5 years (till 2028). Company expects refining and marketing margins to remain stable. Russian crude formed 40% of BPCL’s crude imports in Q3FY24 (vs 40-44% QoQ). BPCL’s premium to Singapore GRM is expected to continue till HSD spreads remain above USD20/bbl. BPCL’s SA net debt stood at Rs60.3bn as of end-Dec ’23, while consol. D/E is at ~0.6x currently with peak level of 1x expected in the next few years, assuming current margins prevail. BPCL has incurred capex of Rs80.2bn in 9MFY24 as against the FY24/25 target of Rs100/150bn. Its average crude inventory days are 15-20 and impact of refining gain/loss is not much (in Q3). Work is expected to resume by Jul-24, as force majeure gets lifted in Mozambique, with BPCL already tying up 1mmtpa, while project cash flows are expected from FY28. Bina petchem cashflows are expected from FY29. BPCL is working on the offer documents of the rights issue, which it intends to close by end-FY24; some formal approvals are pending with the MOPNG.

Valuation

We value BPCL on an SOTP-EV/EBITDA based methodology, with investments at a 30% holdco discount. We roll over to Dec-25E, and retain our blended target EV/EBITDA at 6.1x. Key risks: Adverse commodity prices and downstream margins; currency movement; government policies; and project issues.

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