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Weak refining, impairment lead to earnings miss

* BPCL’s reported GRM came in 27% below our est. at USD12.5/bbl in 4QFY24, while implied marketing margin came in 67% above our est. at INR5.7/lit. Overall EBITDA was below our estimate due to weaker-thanexpected refining performance and impairment charge of INR18b in 4Q.

* Refining throughput stood at 10.4mmt vs. our estimate of 10mmt. Refining GRM was below our expectations but higher than HPCL (USD6.9/bbl) and IOC (USD8.4/bbl). In 4Q, Russian crude constituted ~40% of crude mix.

* Marketing sales volume (excluding exports) came in at 13.2mmt in 4Q (vs. 12.9mmt in 3Q). OMCs are currently earnings a gross marketing margin of INR5/lit vs. our assumption of INR3.3/lit for both petrol/diesel.

* Singapore GRM (SG GRM) has been weak so far in 1QFY25’td at USD3.6/bbl vs. USD7.3/bbl in 4QFY24, which may lead to muted refining performance in 1QFY25. Our earnings estimates remain unchanged after 4QFY24 results. However, we raise capex in FY25/FY26 to INR140b/INR150b, as per company guidance (previously: INR100b for both FY25/FY26).

* BPCL is currently trading at 1.4x FY26E P/B and we see limited upside from current levels (FY26 ROE: 17.6%). However, with minimal volume growth and a sharp rise in capex in coming years, we maintain our Neutral rating with a TP of INR660, valuing the stock at 1.5x FY26E BV.

Miss due to lower-than-estimated refining margin; impairment in BPRL

* 4Q refining throughput was in line with our est. at 10.4mmt (-3% YoY).

* Reported GRM stood at USD12.5/bbl (vs. our estimate of USD17.1/bbl and USD9.9/bbl in 3QFY24).

* Marketing volumes, excluding exports, were in line with our estimate at 13.2mmt (+2% YoY). Marketing margin (including inv.) was higher than our estimate at INR5.7/lit (vs. INR3.5/lit in 3QFY24).

* EBITDA stood at INR92.4b (our est. INR102.7b), led by lower refining margins in 4Q.

* The reported PAT was below our estimate at INR42b. However, adjusted for impairment of INR18b, adj. PAT came in at INR55.7b (our est. INR63.6b).

* During 4QFY24, BPCL recorded impaired investments of INR18b in BPRL due to a change in prospects of its blocks. The accumulated impairment loss on investments in BPRL as of Mar’24 was INR52b.

* For FY24, BPCL posted EBITDA of INR443.4b (vs. INR126.5b in FY23) and adj. PAT of INR280.2b (vs. adj. PAT of INR29.6b in FY23).

* Marketing sales volume, excluding exports, grew 4% YoY to 51mmt, with marketing margin at INR6.1/lit (vs. marketing loss of INR1.4/lit in FY23).

* The refining throughput was down 4% YoY at 39.9mmt, with reported GRM at USD14.2/bbl (vs. USD20.2/bbl in FY23).

* The board has recommended a bonus share issuance in the ratio 1:1. It has recommended a dividend of INR21/share (pre-bonus), i.e., 210% of FV.

Valuation and view

* BPCL’s GRMs have been at a premium to SG GRM on account of continuous optimization of refinery production, product distribution and crude procurement. The use of advanced processing capabilities of Bina and Kochi refineries allows BPCL to process 100% of high sulphur crude and 50% Russian crude.

* With valuations at 1.4x FY26E P/BV, we see limited upside from current levels. With minimal volume growth, rising capex and volatility in earnings from the marketing division, we maintain our Neutral rating with a TP of INR660, valuing the stock at 1.5x FY26E BV.

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