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BPCL: Under recovery concerns ease
Jun 12, 2014

Bharat Petroleum Corporation Ltd (BPCL) has announced results for the fourth quarter and year ended March 2014. The revenues for the FY14 were up by 8.3% year on year (YoY) while net profit for the year grew 53.6% YoY. For the quarter ending March 2014, the revenues were up 12.8% YoY while net profits declined 15.2% YoY. Here is our analysis of the results

Performance summary
  • Revenues for the quarter were up by 12.8% YoY. For FY14, the revenues grew by 8.3% YoY.
  • The operating profit for the quarter declined by 3.4% YoY, with margins at 8.5% versus 9.9% in 4QFY13. For FY14, the operating profit grew 32.4% YoY with margins at 3.1% versus 2.5% in FY13.
  • The net profit for the quarter declined 15.2% YoY with margins at 5.4% versus 7.2% in 4QFY13. For FY14, net profit grew 53.6% YoY with margins at 1.6% versus 1.1% in FY13.
  • The crude thruput for the quarter stood at 6.05 million tonnes (MT), up from 5.81 MMT in the corresponding quarter last year. For FY14, the standalone crude thruput stood at 23.35 MMT, marginally higher than 23.21 MMT in FY13. On a consolidated basis, the crude thruput stood at 28.69 MMT in FY14, down marginally from 28.55 MMT in FY13.
  • The market sales (including exports) for the quarter stood at 9.36 MT as compared to 9.52 MT in the preceding quarter and 9.29 MT in 4QFY13. For FY14, the market sales (including exports) stood at 37.01 MMT, up 1.5% YoY. The consolidated market sales for the year stood at 37.37 MT, up 1.3% YoY.
  • For FY14, the GRMs (gross refining margins) stood at US$ 4.33 per barrel, down from US$ 4.97 per barrel in FY13. For the quarter, the GRMs stood at US$ 6.63 per barrel.
  • For FY14, the gross under recoveries stood at Rs 345 bn. The company received discount of Rs 155.7 bn from the upstream segment, down 7.5% YoY while subsidy support from Government amounted to Rs 184 bn, down 16.1% YoY.
  • BPCL absorbed net under recoveries of Rs 5 bn for FY14, almost double of the burden shared in FY13.The gross under recoveries for the year stood at around Rs 345 bn, down 11.6% YoY.
  • On a consolidated basis, the revenue and net profit for the year grew by 9.2% YoY and 108% YoY. The pretax profit for the year grew by 91.5% YoY. As per the auditors, because of the recalculation of depreciation (subject to approval by Ministry of Corporate Affairs), the consolidated pretax profit is overstated by Rs 2.3 bn.
  • Bina refinery has reported a loss of around Rs 3 bn during the quarter. As per the management, the breakeven level for GRMs is US$ 11 - US$ 11.5 per barrel. However, the GRMs for the refinery for FY14 stand at US$ 9.3 per barrel. Numaligarh refinery's GRMs for FY14 stood at US$ 9.11 per barrel.
  • The Board of Directors has recommended a dividend of Rs 17 per share, implying a dividend yield of 2.8%.

Financial snapshot
(Rs m) 4QFY13 4QFY14 Change  FY13 FY14 Change 
Net sales  663,107 747,720 12.8% 2,401,158 2,600,605 8.3%
Expenditure  597,293 684,142 14.5% 2,340,089 2,519,743 7.7%
Operating profit (EBDITA)  65,814 63,577 -3.4% 61,069 80,862 32.4%
EBDITA margin (%)  9.9% 8.5% -1.4% 2.5% 3.1%  
Other income  5,079 4,228 -16.8% 16,802 14,687 -12.6%
Interest  3,172 2,048 -35.4% 18,252 13,591 -25.5%
Depreciation  5,820 6,189 6.3% 19,261 22,468 16.7%
Profit before tax  61,901 59,567 -3.8% 40,357 59,490 47.4%
Profit before tax margin (%)  9.3% 8.0%   1.7% 2.3%  
Tax  13,928 18,884 35.6% 13927.9 18881 35.6%
Profit after tax/(loss)  47,973 40,684 -15.2% 26,430 40,609 53.6%
Net profit margin (%)  7.2% 5.4%   1.1% 1.6%  
No. of shares (m)          723  
Diluted earnings per share (Rs)*          56.2  
P/E ratio(x)*         11.0  
**On a trailing 12 months basis

What has driven performance during the quarter?
  • BPCL reported 12.8% YoY growth in the sales driven by higher market sales and higher realizations

  • At operating level, the company reported decline of 3.4%, with margins at 8.5%, down 1.4% YoY. The GRMs for the quarter at US$ 6.6 per barrel were higher by 11% YoY. Partial shutdown in the refineries in 3QFY14 led to over 3 times increase (QoQ) in the GRMs. The GRMs improved on account of strength in benchmark Singapore GRMs.

    Cost breakup
    (Rs m) 4QFY13 4QFY14 Change  FY13 FY14 Change 
    Raw material cost 561,349 648,621 15.5% 2,218,373 2,380,650 7.3%
    as a % of sales 84.7% 86.7%   92.4% 91.5%  
    Staff cost 8,560 7,910 -7.6% 27,689 28,964 4.6%
    as a % of sales 1.3% 1.1%   1.2% 1.1%  
    Other expenses 27,384 27,612 0.8% 94,028 110,130 17.1%
    as a % of sales 4.1% 3.7%   3.9% 4.2%  
    Total costs 597,293 684,142 14.5% 2,340,090 2,519,743 7.7%
    as a % of sales 90.1% 91.5%   97.5% 96.9%  

  • The net profits for the quarter declined (YoY) due to decline in other income and high effective tax rate. This was offset to some extent by decline in the interest cost.
What to expect?
GRMs were higher this quarter due to strong benchmark Singapore cracks. Going forward, the moderation in margins can not be ruled out.

For Kochi refinery expansion, the management has given a timeline of May 2016.

While a phased hike in diesel prices will reduce under recoveries, it will attract competition from Private players. Still, BPCL is better placed than its peers because of its exposure to E&P (Exploration and Production) segment. The stock price for BPCL has seen a significant run up of around 77% in the year till date. We will revise our estimates and update subscribers with the target price soon. Until then, we are keeping the view and target price for BPCL 'Under review'

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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