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Outlook intact amid stable performance

* BPCL’s reported GRM came in 14% above our est. at USD13.4/bbl in 3QFY24, while implied marketing margin came in 9% above our est. at INR3.5/lit. Despite higher-than-estimated margins, EBITDA was in line with our estimate due to higher employee benefit expenses.

* Refining throughput stood at 9.9mmt, which was more than 100% of nameplate capacity, despite a planned shutdown at Mumbai refinery. During the quarter, high Sulphur crude accounted for 83% of processed crude mix, while Russian crude made up 40% of the mix.

* Singapore GRM (SG GRM) has rebounded to USD7.2/bbl in 4QFY24 so far from USD5.5/bbl in 3QFY24, which may improve the refining performance in 4Q. Kochi and Bina refineries are planned to be shut for 15 days in FY25; however, the exact dates are still being worked out.

* Marketing sales volume (excluding exports) stood at 12.9mmt in 3QFY24 (vs. 12.2mmt in 2QFY24). During Apr-Dec’23, BPCL’s market share stood at 29.62%/29.71% in petrol/diesel.

* At 1.1x FY26 P/BV, we see limited downside from the current level. However, with minimal volume growth in next two years and volatility in earnings from the marketing division, we maintain our Neutral rating with a TP of INR475, valuing the stock at 1.2x Dec’25E BV.

GRM and marketing margins above estimates

* BPCL’s refining throughput was in line with our estimate at 9.9mmt (+5% YoY) during the quarter.

* Reported GRM was higher than our estimate at USD13/bbl (vs. our estimate of USD11.7/bbl and USD18.5/bbl in 2QFY24).

* Marketing volumes, excluding exports, were in line with our estimate at 12.9mmt (+1% YoY).

* Marketing margin (including inv.) was higher than our estimate at INR3.6/lit (vs. INR5.9/lit in 2QFY24).

* EBITDA was in line with our estimate at INR62.8b, as high employee benefit expenses were offset by high refining and marketing margins in 3Q.

* The reported PAT was in line with our estimate at INR34b in 3Q.

* Debt decreased to INR160.2b as of 3Q end from INR225.7b as of 2Q end.

* For 9MFY24, BPCL posted EBITDA of INR351b (vs. INR14.9b in 9MFY23) and adj. PAT of INR224.5b (vs. a net loss of INR46.1b in 9MFY23).

* Marketing sales volume, excluding exports, grew 5% YoY to 37.9mmt, with a marketing margin at INR6.3/lit (vs. marketing loss of INR2.9/lit in 9MFY23).

* The refining throughput was up 6% YoY at 29.6mmt, with reported GRM at USD14.7/bbl (vs. USD20.1/bbl in 9MFY23).

* BPCL had a cumulative negative net buffer of INR8487.4m as of Mar’23 due to the under-recovery on LPG cylinders. The same was recognized as part of revenue upon its recovery during 9MFY24.

Valuation and view

* BPCL’s GRM has been at a premium to SG GRM on account of continuous optimization of refinery production, product distribution, and crude procurement. The advanced processing capabilities of Bina and Kochi refineries allow for the processing of 100% of high Sulphur crude and 50% Russian crude.

* At 1.1x FY25 P/BV, we see limited downside from the current level. However, with minimal volume growth in the next two years and volatility in earnings from the marketing division, we maintain our Neutral rating with a TP of INR475, valuing the stock at 1.2x Dec’25E BV.

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