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BPCL : High under recoveries drag bottomline
Feb 13, 2014

Bharat Petroleum Corporation Ltd (BPCL) has announced results for the third quarter of the financial year 2013-14 (3QFY14). The revenues for the quarter were up by 3.8% year on year(YoY) while the company reported net loss of Rs 11 bn. Here is our analysis of the results

Performance summary
  • Revenues for the quarter were up by 3.8% YoY. For the nine months ending December 2013 (9MFY14), the revenues grew by 6.6% YoY.
  • The company reported operating loss of Rs 9 bn for the quarter as compared to profit of Rs 23 bn in 3QFY13. For the nine months, the operating profits stood at around Rs 17 bn with operating profit margins at 0.9%, as compared to operating loss of Rs 4.7 bn in 9MFY13.
  • The company reported net loss of Rs 11 bn during the quarter as compared to net profits of Rs 16 bn in 3QFY13. For 9MFY14, BPCL reported net loss of around Rs 75 m, as compared to net loss of around Rs 21.5 bn in 9MFY13.
  • The crude thruput for the quarter stood at 5.63 million tonnes (MT) versus 6.04 MT in 2QFY14 and 5.55 MT in 3QFY13. For the nine months, the crude thruput stood at 17.3 MT, versus 17.4 MT in 9MFY13.
  • The market sales (including exports) for the quarter stood at 9.52 MT as compared to 8.86 MT in the preceding quarter and 9.27 MT in 3QFY13. For the nine months, the market sales (including exports) stood at 27.65, up 1.7% YoY
  • For 9MFY14, the GRMs stood at US$ 3.50 per barrel, down from US$ 4.63 per barrel in 9MFY13.
  • For 9MFY14, the company received discount of Rs 118 bn from the upstream segment , up 8.7% YoY while subsidy support from Government amounted to Rs 88 bn, down 33% YoY.
  • BPCL absorbed net under recoveries of Rs 41.6 bn for the first nine months of FY14.

Standalone performance summary
(Rs m) 3QFY13 3QFY14 Change  9mFY13 9mFY14 Change 
Net sales  623,687 647,676 3.8% 1,738,050 1,852,886 6.6%
Expenditure  600,814 656,834 9.3% 1,742,797 1,835,601 5.3%
Operating profit (EBDITA)  22,873 -9,158 nm -4,746 17,285 nm
EBDITA margin (%)  3.7% -1.4%   -0.3% 0.9%  
Other income  4,018 2,508 -37.6% 11,724 10,459 -10.8%
Interest  5,758 3,045 -47.1% 15,081 11,542 -23.5%
Depreciation  4,657 5,592 20.1% 13,441 16,279 21.1%
Profit before tax  16,476 -15,288 nm -21,544 -77 nm
Profit before tax margin (%)  2.6% -2.4%   -1.24% 0.00%  
Tax  0 -4,398 nm 0 -3 nm
Profit after tax/(loss)  16,476 -10,889 nm -21,544 -75 nm
Net profit margin (%)  2.6% -1.7%   -1.2% 0.0%  
No. of shares (m)          723  
Diluted earnings per share (Rs)*          66.2  
P/E ratio(x)**          nm  
**On a trailing 12 months basis

What has driven performance during the quarter?
  • BPCL reported 3.8% YoY growth in the sales driven by higher throughput and higher market sales. During the quarter, the performance suffered because of the partial shutdown of some of its units.

  • At operating level, the company reported losses of around Rs 9 bn. The company absorbed net under recovery burden of Rs 34 bn during the quarter (versus a surplus of Rs 2 bn in the corresponding period last year). The losses were partially offset by a forex gain of Rs 3 bn. The gross refining margins for the quarter stood at US$ 1.7 per barrel (versus US$ 4.8 per barrel in 3QFY13).

    Cost breakup
    (Rs m) 3QFY13 3QFY14 Change  9mFY13 9mFY14 Change 
    Raw material cost 572,378 632,190 10.4% 1,657,024 1,732,029 4.5%
    as a % of sales 91.8% 97.6%   95.3% 93.5%  
    Staff cost 5,952 6,059 1.8% 19,128 21,054 10.1%
    as a % of sales 1.0% 0.9%   1.1% 1.1%  
    Other expenses 22,484 18,586 -17.3% 66,644 82,518 23.8%
    as a % of sales 3.6% 2.9%   3.8% 4.5%  
    Total costs 600,814 656,834 9.3% 1,742,797 1,835,601 5.3%
    as a % of sales 96.3% 101.4%   100.3% 99.1%  

  • The company reported loss for the quarter on account of less than full compensation for under recoveries. The depreciation expense for the quarter was up 20.1%. However, the interest expense for the quarter declined by 47% YoY.
What to expect?
Delay in the under recovery compensation, volatile crude price and exchange rates are a cause of concern for BPCL. A phased hike in diesel prices is positive for the company in the long run. Going forward, further clarity on exploration and production potential will be a key catalyst for the stock price. The stock is currently trading at multiple of 7.6 times its estimates earnings per share in FY16. We suggest investors to Hold the stock from a long term perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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