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LPG under-recovery weighs on 1QFY25

* BPCL’s reported GRM came in line with our est. at USD7.9/bbl in 1QFY25, while implied marketing margin came in 19% above our est. at INR4.8/lit. Standalone PAT at INR30b was down 9% vs. our estimate, largely due to LPG-related under-recoveries.

* Refining throughput stood at 10.1mmt vs. our estimate of 10.3mmt. In 1Q, Russian crude constituted ~39% of crude mix.

* Marketing sales volume (excluding exports) came in at 13.2mmt in 1QFY25 (vs. 13.2mmt in 4QFY24). OMCs are currently earning a gross marketing margin higher than our assumption of INR3.3/lit for both petrol/diesel.

* Singapore GRM (SG GRM) has been marginally up so far in 2QFY25 at USD3.9/bbl vs. USD3.5/bbl in 1QFY25, which may lead to muted refining performance in 2QFY25.

* Key points from the conference call:

* BPCL took a hit of INR20b due to LPG under-recoveries in 1QFY25. At the current Saudi propane prices, BPCL is losing INR6b/month on LPG but remains hopeful of financial support from the government.

* Russian crude discounts were flat QoQ at USD 3.5-4/bbl.

* The company is looking to augment refining capacity further and exploring a 9-12mmtpa project on the East or West coast.

* Structurally, BPCL remains positive on refining and believes GRMs should recover to normalized levels by 2QFY25 end. We cut FY25E consolidated PAT by 16% mainly as we account for LPG “under-recoveries.” These losses will likely be recovered from the government later in 2HFY25.

* BPCL is currently trading at 1.5x FY26E P/B and we see limited upside from the current level (FY26 ROE: 17.7%). However, with marginal volume growth and a sharp rise in capex expected in coming years, we maintain our Neutral rating with a TP of INR320, valuing the stock at 1.5x FY26E P/B.

Reported EBITDA in line, but lower-than-estimated PAT

* Reported GRM stood at USD7.9/bbl (vs. our estimate of USD8/bbl and USD12.5/bbl in 4QFY24).

* Marketing volumes, excluding exports, were in line with our estimate at 13.2mmt (+3% YoY). Marketing margin (including inv.) was higher than our estimate at INR4.8/lit (vs. INR5.7/lit in 4QFY24).

* EBITDA stood at INR56.5b (our est. INR59.6b) despite marketing inventory gain of INR4b in 1QFY25.

* Adjusted EBITDA stood at INR52.5b, down 12% vs. our est. of INR59.6b.

* Reported PAT was 9% below our estimate at INR30.1b (our est. INR33b).

* As of Jun’24, BPCL’s debt stood at INR152b vs. INR188b as of Mar’24.

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