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Outperforms peers in Q4; retain BUY

BPCL clocked Q4FY24 EBITDA/APAT of Rs92.7/55.7bn – a sizable 17-18% beat each, driven by higher-than-expected implied marketing margin of ~Rs7/kg (at a 16% beat). BPCL’s reported GRM of USD12.5/bbl (vs. our estimate of USD13.5/bbl) was better than peers’, with LPG buffer net positive vs. net negative for peers. Mgmt. reiterated its capex plans of Rs1.7trn up till CY28, and FY25/26 capex target is Rs150-160/160-200bn. Mgmt. indicated favorable margins at USD80-85/bbl crude price. We maintain our constructive stance on OMCs led by steady marketing outlook, as the general elections pan out and despite the volatile refining scenario. We raise FY25-26E EPS by 15-20% each, on better marketing margins and below operating-line adjustments. We retain BUY, and raise rolled over Mar-25E TP by 22% to Rs730/share, supported by lower net debt.

Result Highlights

Refinery utilization was healthy at ~117%, as throughput rose 5% QoQ. GRM of the Mumbai/Kochi/Bina refinery was USD9.0/12.8/18.7 per bbl in Q4, staying range-bound QoQ. Marketing inventory loss was Rs7.7bn in Q4. Domestic sales volume rose 2% YoY vs. 4% for the industry, with overall volumes at a 4% miss. Petrol/diesel sales volumes rose 7%/fell 1% YoY vs. industry growth of 8%/4%. Opex was 1% higher than estimate, at Rs77.5bn. Gross debt was up 17% to Rs187.7bn as of Mar-2024-end, whereas net debt stood at Rs100.2bn. Company saw Rs18bn upstream impairment in Q4. FY24 capex was Rs117bn. BPCL's EBITDA/APAT recovered to Rs443/280bn in FY24, from Rs69bn/loss YoY, led by recovery in marketing margins. Board has recommended bonus issue of 1:1 and a final dividend of Rs21/share, implying 34% payout in FY24.

Management KTAs

Mgmt. reiterated Project Aspire and set its FY25/26 capex target at Rs150-160/160- 200bn, though peak capex could be seen in FY27-28 with Bina capex scale-up. Peak debt/equity in SA books would be ~1x in the next 5 years, based on current margins and as against the 0.2x gross D/E currently. BPCL expects refining capacity to increase to 45mmtpa by FY29, through brownfield expansion of BR; MR and KR are expanding capacity by 1.5-2mmtpa each via debottlenecking. Russian crude formed 38-39% of the crude sourcing mix, in FY24. BPCL plans to add 4,000 new ROs/pumps by FY29 (vs >22k now). Company is comfortable with crude hovering at USD80-85/bbl and can earn stable margins. The current margin squeeze may be for a short period. BPCL’s total gas footprint as a group is 1.5-1.6mmtpa, with long-term supply agreement for 2.89mmtpa. The security situation at Mozambique is improving, and BPCL is hopeful of activities restarting in FY25.

Valuation

We value BPCL on the SOTP-EV/EBITDA based methodology, with investments at a 30% holdco discount. We roll over to Mar-26E, and retain our blended target EV/EBITDA at 6.0x. Key risks: Adverse commodity prices and downstream margins; currency movement; government policies; and project issues.

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