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Bongaigaon: Powered by IOC potion - Views on News from Equitymaster
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  • May 28, 2003

    Bongaigaon: Powered by IOC potion

    Bongaigaon Refineries has recently announced its financial results for the year ended FY03. Since then, the company risen consistently on the bourses. In FY03, the company has registered a turnaround on account of the duty concessions granted by the government and the effect of APM dismantling, which happened last year. We analyse the results of the company in detail.

    (Rs m) FY02 FY03 Change
    Net sales 10,247 17,210 68.0%
    Claims from industry pool account 1,308 17 -98.7%
    Other Income 256 2,172 750.0%
    Expenditure 14,184 15,747 11.0%
    Operating Profit (EBDIT) (2,629) 1,480 -
    Operating Profit Margin (%) -25.7% 8.6%  
    Interest 377 259 -31.3%
    Depreciation 342 316 -7.5%
    Profit before Tax -3,093 3,077 -
    Tax 1,107 1,293 16.8%
    Profit after Tax/(Loss) (1,986) 1,785 -
    Net profit margin (%) -19.4% 10.4%  
    No. of Shares 199.8 199.8  
    Diluted earnings per share* -9.9 8.9  
    P/E Ratio   3.6  

    Bongaigaon recorded a 68% rise in its topline on account of higher prices of refinery products, which is in line with industry growth rates. The prices of petroleum products increased favorably during the past year, in line with the rising crude prices. Also the capacity utilization of the company seems to have increased, albeit marginally.

    Operating profit of the company stood at Rs 1.5 bn (as compared to operating losses of Rs 2.6 bn last year). This was because the company's expenditure was up only 11% YoY, much below the sales growth. Also, the company benefited due to excise duty concessions granted by the government to refineries. Excise duty was down 18% YoY to Rs 1.4 bn. As a percentage of gross sales, excise duties almost halved to 7.5% in FY03 (14.2% of sales in FY02). Though the crude prices remained higher in FY03, the favorable prices of refinery products helped neutralize the effect of increase in raw material cost. Because of this, the raw material cost as a percentage of sales remained almost constant.

    Cost as % of net sales FY02 FY03
    Stock in trade 1.7% -0.6%
    Raw material 80.1% 79.1%
    staff costs 5.7% 4.8%
    Other Exp 19.5% 8.2%

    During last year, softening interest rates positively affected the interest outgo for the company. Its other income too has spurted sharply. Consequently, Bongaigaon saw a turnaround during FY03. To put things into perspective, the company clocked Rs 1.8 bn as net profits during FY03, as against losses of almost Rs 2 bn last year. Going forward the capacity utilization of the company is expected to increase from the present 62% to about 85%. This is on account of an allotment of 1.5 m tonnes of crude oil from Ravva fields to the company by the government. This apart, the company is likely to receive additional 0.5 m tonnes of crude from the Assam fields.

    PBIT break-up
    (Rs m) FY02 FY03
    Refinery segment (2,012) 3,715
    Petrochemicals segment 355 (99)
    PSF segment (386) (342)

    If one were to look at the segmental break up for the company, it becomes clear that till FY03, the refinery segment was the only profit making business of the company. However in FY03, the losses accruing from the petrochemicals and PSF segment were reduced. In FY04, Bongaigaon's petrochemical and PSF operations are likely to restart. Going forward this may add to the bottomline on account of the upturn in the petrochemicals industry.

    At Rs 32 the stock is trading at a P/E of 3.6x FY03 earnings, which is on the lower side of the industry P/E. The company is likely to benefit from the marketing network of its parent organization IOC in order to market its refinery products. However, in our view the long-term prospects of the company are too dependent on government policies. In FY03, a large part of the improvement in income statement came about due to favourable policies. Operationally, the company has a long way to go to present itself. In effect, the company may find favour largely due to the IOC parentage and government backing.



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