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BPCL: Lower financial burden aids bottomline - Views on News from Equitymaster

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BPCL: Lower financial burden aids bottomline
Jun 2, 2010

BPCL has announced its FY10 results. The company has reported a 10% YoY decline and 109% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 10% YoY during FY10 due to lower realisations.
  • EBITDA margins remain stable at 2.0% in FY10.
  • Other income grows by 52% YoY during the fiscal.
  • Interest cost declines by 53% during FY10.
  • Bottomline grows by 109% primarily on the back of lower interest cost.
  • Board recommends a dividend of Rs 14 per share.

Standalone Financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 265,253 375,703 41.6% 1,353,315 1,223,599 -9.6%
Expenditure 223,519 364,237 63.0% 1,325,004 1,198,969 -9.5%
Operating profit (EBDITA) 41,734 11,466 -72.5% 28,311 24,630 -13.0%
EBDITA margin (%) 15.7% 3.1%   2.1% 2.0%  
Other income 5,901 5,884 -0.3% 14,150 21,563 52.4%
Interest 6,149 2,059 -66.5% 21,664 10,110 -53.3%
Depreciation 2,631 3,208 21.9% 10,755 12,423 15.5%
Profit before tax 38,854 12,083 -68.9% 10,041 23,661 135.6%
Tax 2,574 5,052 96.2% 2,682 8,284 208.9%
Profit after tax/(loss) 36,280 7,032 -80.6% 7,359 15,376 108.9%
Net profit margin (%) 13.7% 1.9%   0.5% 1.3%  
No. of shares (m)         362  
Diluted earnings per share (Rs)         43  
Price to earnings ratio (x)         14  

What has driven performance in FY10?
  • The gross refining margin for BPCL during FY10 was US$ 1.78 per barrel (US$ 4.48 per barrel in FY09) for its Mumbai refinery and US$ 4.87 per barrel (US$ 6.27 per barrel in FY09) for its Kochi Refinery.

  • The market sales for BPCL during FY10 were higher at 27.7 m tonnes (MMT) from 27.16 MMT during FY09. The company registered an increase in the volume of petrol (10.7%), LPG (6.7%) and diesel (6%). It was offset by a reduction in the volume of Naptha (-20.5%) and furnace oil (-11.8%).

  • BPCL's under recovery on sensitive petroleum products was partially compensated by the upstream oil companies during the period. Accordingly, a discount of Rs 36.3 bn (Rs 75.6 bn during FY09) was received for the purchase of crude oil, Kerosene and LPG from ONGC and GAIL. Further, the Government of India has intimated a subsidy of Rs 52.7 bn for FY10 as against oil bonds to the tune of Rs 162.2 bn for FY09.

  • BPCL's raw materials cost (as a % of sales) increased by 9.7% on a YoY basis from 76.3 % in 4QFY09 to 86% during 4QFY10.

    Cost break-up
    (Rs m) 4QFY09 4QFY10 Change
    Raw materials 202,518 323,140 59.6%
    % sales 76.3% 86.0%  
    Staff cost 1,487 7,655 414.9%
    % sales 0.6% 2.0%  
    Other expenditure 19,514 33,142 69.8%
    % sales 7.4% 8.8%  
    Total cost 223,519 363,937 62.8%
    % sales 84.3% 96.9%  

  • Other Income for FY10 includes Rs 5.6 bn towards gains on foreign exchange fluctuations (foreign exchange losses during FY09 of Rs 13 bn were accounted as other expenditure).

What to expect?
At the current price of Rs 575, the stock trades at a multiple of 13 times our estimated FY12 earnings. 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, while poor return on incremental capital expenditure will impact the long-term performance of the company.

Although there are positive noises from the government about deregulation of fuel prices, given their 'aam aadmi' mandate and the political opposition to such a move, it seems unlikely that a genuine structural change will actually be implemented.

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