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BPCL: Bottomline up despite interest cost
Jan 30, 2009

Performance summary
  • Topline increases by 10% YoY during 3QFY09.
  • EBITDA margins increase from 1.6% in 3QFY08 to 4.8% in 3QFY09.
  • Other income declines by 6% YoY during the quarter.
  • Interest cost zooms 312% during 3QFY09.
  • Bottomline grows 175% during the period due to increased operating profit.
  • For 9mFY09, the topline grows by 39% while the bottomline turns negative.


Standalone Financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 289,643 319,080 10.2% 780,375 1,088,062 39.4%
Expenditure 284,913 303,636 6.6% 757,602 1,101,485 45.4%
Operating profit (EBDITA) 4,730 15,445 226.5% 22,773 (13,423)
EBDITA margin (%) 1.6% 4.8% 2.9% -1.2%
Other income 2,942 2,766 -6.0% 10,887 8,249 -24.2%
Interest 1,738 7,161 312.0% 4,491 15,514 245.4%
Depreciation 3,065 3,014 -1.7% 7,664 8,124 6.0%
Profit before tax 2,869 8,036 180.1% 21,505 (28,813)
Tax (44) 38 6,283 108 -98.3%
Profit after tax/(loss) 2,913 7,998 174.6% 15,222 (28,921)
Net profit margin (%) 1.0% 2.5% 2.0% -2.7%
No. of shares (m) 362

What has driven performance in 3QFY09?
  • The gross refining margin for BPCL during 9mFY09 was US$ 4.25 per barrel (US$ 4.41 per barrel in 9mFY08) for its Mumbai refinery and US$ 6.91 per barrel (US$ 6.58 per barrel in 9mFY08) for its Kochi Refinery.

  • On the volumes front, the market sales for BPCL during 9mFY09 have increased to 20.07 m tonnes (MMT) from 18.82 MMT during 9mFY08. The increase is mainly due to increase in volumes of diesel (14%), petrol (12%), Naphtha (5%) and LPG (4%). It was offset by reduction in volumes of furnace oil (-8%).

  • BPCLs results for 9mFY09 have been adversely affected due to the impact on account of high crude oil and product prices, which could not be fully passed on to the consumers. The under recovery on diesel, petrol, PDS kerosene and domestic LPG was partially compensated by the upstream oil companies during the period. Accordingly, discount of Rs 73 bn (Rs 36 bn during 9mFY08) was received for the purchase of crude oil, kerosene and LPG from ONGC and GAIL. Moreover, the company has accounted for Rs 141 bn of oil bonds for 9mFY09 (Rs 46 bn for 9mFY08).

  • BPCL claimed subsidy from the government towards sale of PDS Kerosene and domestic LPG amounting to Rs 4.2 bn during 9mFY09 (Rs 4.1 bn in 9mFY08).

  • The companys staff costs grew by 170% YoY during 3QFY09 on the back of revision in employee benefits for the management staff.

  • BPCLs other expenditure during 9mFY09 grew 18% due to losses on foreign exchange fluctuations to the tune of Rs 13 bn. (During 9mFY08, there were gains on foreign exchange fluctuations to the tune of Rs 3.3 bn which were accounted as other Income).

What to expect?
At the current price of Rs 393, the stock trades at a multiple of 6.5 times our estimated FY11 earnings. We continue to advise caution on the stock as the rupee dollar exchange rate, interest costs and regulatory concerns will continue to impact the short-term performance of the company, while poor return on incremental capital expenditure will impact the long-term performance of the company.

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