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BPCL: Profits cut by half! - Views on News from Equitymaster
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BPCL: Profits cut by half!
Feb 10, 2011

BPCL has announced 3QFY11 results. It has reported a 14.0% YoY growth in topline while net profits have declined by 51%. Here is our analysis of the results.

Performance summary
  • Topline rises by 14% YoY during the quarter. For the 9 month period, top line grew by 25.4% YoY.
  • EBITDA margins remained stable at 2.0% on a YoY basis during the quarter. For the 9 months period, the margins increased by 0.1% YoY.
  • Other income declined by 33.4% YoY during the quarter. For the 9 months period, it was down by 25.7% YoY.
  • Interest costs rose 9.3% YoY during the quarter. For the 9 months period, the costs declined by 2.5% YoY.
  • PAT tanks by 50.6% during the quarter while registering a net profit margin of 0.5% (versus 1.2% in 3QFY10). For the 9 months period, the net profit declined by 30.7% YoY.


(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 321,829 366,859 14.0% 847,896 1,063,532 25.4%
Expenditure 315,385 359,371 13.9% 834,732 1,045,238 25.2%
Operating profit (EBDITA) 6,444 7,488 16.2% 13,164 18,294 39.0%
EBDITA margin (%) 2.0% 2.0%   1.6% 1.7%  
Other income 4,656 3,103 -33.4% 15,679 11,648 -25.7%
Interest 2,513 2,747 9.3% 8,051 7,851 -2.5%
Depreciation 3,816 3,700 -3.0% 7,719 11,726 51.9%
Profit before tax 4,771 4,144 -13.1% 13,074 10,365 -20.7%
Profit before tax margin (%) 1.5% 1.1%   1.5% 1.0%  
Tax 980 2,270 131.6% 4,250 4,250 0.0%
Profit after tax/(loss) 3,791 1,874 -50.6% 8,824 6,115 -30.7%
Net profit margin (%) 1.2% 0.5%   1.0% 0.6%  
No. of shares (m)         362  
Diluted earnings per share (Rs)*         36.4  
P/E ratio(x)*         16.0  
*On a trailing 12 months basis

What has driven performance in 3QFY11?
  • Top line for the quarter rose by 14% YoY on account of 6.2% YoY increase in market sales volumes (7.57 MMT versus 7.13 MMT last year). For the 9 months period, sales volumes were up by 5% YoY (21.51 MMT versus 20.58 MMT).

  • Average gross refining margins for the quarter came at US$ 4.62. For the 9 months period, the gross refining margins were up by 34% (US$ 3.63 per barrel versus US$2.70 last year).

  • Operating profits during the quarter increased by 16.2% YoY. The margins remained stable (YoY) at 2% .The overall expenses rose by 13.9% due to increase in crude prices, staff costs and forex losses.

  • The under recovery on the sales of petroleum products was partially compensated to the extent of Rs 29.8 bn (up 13% YoY) with upstream and Government sharing in the ratio of 80%:20% (versus 43%:57% during 3QFY10). For the 9 months period, subsidies came at Rs 82.9 bn (up 126% YoY), with share of Government and upstream companies in the ratio of 57%:43% (versus 41%:59% during 9mFY10).

  • Despite a surge in topline, net profits declined by 51% YoY due to decline in other income and increase in tax expenses. The tax expense for the quarter and 9 months included Rs. 1,050 m towards provision for previous years.

Cost break-up
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Raw materials 298,273 334,243 12.1% 773,375 966,086 24.9%
% sales 92.7% 91.1%   91.2% 90.8%  
Staff cost 3,982 5,696 43.0% 13,757 15,634 13.7%
% sales 1.2% 1.6%   1.6% 1.5%  
Other expenditure 13,129 19,433 48.0% 47,600 63,518 33.4%
% sales 4.1% 5.3%   5.6% 6.0%  
Total cost 315,385 359,371 13.9% 834,732 1,045,238 25.2%
% sales 98.0% 98.0%   98.4% 98.3%  

What to expect?
At current price of Rs. 582, the stock trades at 16.6 times our expected FY13 consolidated earnings (Rpro subscribers please click here. At current crude oil prices, it is unlikely that the Government will deregulate diesel prices and this limits the upside potential for BPCL. We continue to advise caution on the stock as interest costs and regulatory concerns will continue to impact the short-term performance of the company.

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