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Strong refining offsets weak marketing performance

* BPCL posted a robust GRM of USD41.4/bbl during the quarter. GRM, adjusted for SAED, stood at USD17/bbl (est.: USD15/bbl). Implied gross marketing margin (GMM) loss (incl. inv.) stood at INR16.3/lit. Adjusted for SAED, GMM loss (incl. inv.) stood at INR5.5/lit (est. loss: INR10.1/lit). EBITDA/PAT losses stood lower than est. at INR41b/INR40b (est.: INR123/INR103b).

* Things we liked about the result:

1) BPCL posted a strong refining performance, fueled by elevated diesel and ATF cracks and a high middledistillate yield of ~84% across refineries.

2) The company continues to diversify its crude basket, with Russian crude share rising to 38% in 1QFY27 from 31% in 4QFY26. Crude supply until Aug’26 has already been secured.

3) Mozambique remains on track for first gas in FY29 and is expected to generate ~USD350m annual cash flow (pre-interest and debt repayment) at USD65/bbl crude.

4) Following the acquisition of an additional 39% stake in IBV Brazil (now a wholly owned subsidiary), BPCL, via BRPL, now holds a 40% participating interest in the field (estimated reserves of ~88kb/d), with first oil/gas expected in FY31/32.

* Key monitorables:

1) Domestic LPG losses surged to ~INR510/cylinder in 1QFY27 (vs. ~INR80/cylinder in 4QFY26). Further, losses remained high at INR490/cylinder in Jul’26.

2) With renewed US-Iran tensions and escalating Russia-Ukraine conflict, crude prices have rebounded to USD90-100/bbl. Combined with multi-year high gasoline, diesel, and ATF cracks, this is likely to keep marketing margins under pressure in the near term. Additionally, we see an increased risk of a higher Special Additional Excise Duty (SAED) on MS, HSD, and ATF.

3) With OMCs making huge marketing losses, we believe that some form of government compensation/support remains a possibility.

4) The Bina petrochemical and refinery expansion project has achieved 31% progress. There are some delays due to geopolitical developments and supply-chain disruptions.

* Valuation and view: The stock currently trades at 1.1x FY28 P/B (FY28E RoE: 14.6%). We reiterate our Neutral rating on the stock with an SoTPbased valuation of INR330

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

* While valuation appears reasonable, a weak near-term marketing outlook and the commencement of a new capex cycle emerge as key concerns.

* BPCL currently trades at 1.2x 1yr. fwd. P/B vs. 10-year average of 1.7x. We reiterate our Neutral rating with an SoTP-based valuation of INR330.

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