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BPCL: Mounting under recoveries
Jun 17, 2008

Performance summary
  • Topline increases by 13% YoY during FY08, helped by oil bonds.

  • EBITDA margins fall by 0.8% due to under recoveries of high input prices.

  • Other income rises by 69% YoY during the year.

  • Bottomline registers a decline of 13% YoY owing to decline in operating profits.

  • Topline grows by 35% YoY, while bottomline declines 91% YoY in 4QFY08.

  • Board recommends final dividend of Rs 4 per share (Dividend yield of 1.4%)


Standalone Financial snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 241,265 325,786 35.0% 975,602 1,105,468 13.3%
Expenditure 228,527 317,186 38.8% 941,442 1,075,461 14.2%
Operating profit (EBDITA) 12,738 8,600 -32% 34,160 30,007 -12.2%
EBDITA margin (%) 5.3% 2.6% 3.5% 2.7%
Other income 2,547 1,343 -47.3% 7,332 12,394 69.0%
Interest 1,648 2,156 30.8% 4,774 6,725 40.9%
Depreciation 2,778 3,319 19.5% 9,041 10,982 21.5%
Profit before tax 10,859 4,468 -58.9% 27,677 24,694 -10.8%
Extraordinary income/(expense) - - - 1,279
Tax 4,159 3,884 9,622 10,167 5.7%
Profit after tax/(loss) 6,700 584 -91.3% 18,055 15,806 -12.5%
Net profit margin (%) 2.8% 0.2% 1.9% 1.4%
No. of shares (m) 361.5
Diluted earnings per share (Rs) 43.7
Price to earnings ratio (x) 6.4

What has driven performance in FY08?
  • BPCLs gross refining margin during FY08 was US$ 4.60 per barrel (previous year US$ 3.64 per barrel) for Mumbai refinery and US$ 7.18 per barrel (previous year US$ 3.46 per barrel) for Kochi refinery.

  • Sales include Government of India special bonds to the tune of Rs 86 bn for FY08 (previous year: Rs 52 bn). It may be noted that the bonds worth Rs 40 bn were yet to be received at the end of FY08.

  • The results continue to be affected due to high crude oil prices, which could not be fully passed on to the consumers resulting in low product prices.

  • The under recoveries were partially compensated by the upstream oil companies, ONGC and GAIL, through discount on purchase (subsidies) of crude oil, LPG and SKO. The subsidies for FY08 were to the tune of Rs 60 bn (previous year: Rs 45 bn).

  • During FY08, subsidy claim towards sale of SKO (PDS), and LPG (Domestic) amounted to Rs 5.5 bn (last year Rs 5.3 bn).

    Cost break-up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Raw materials 211,373 298,772 41.3% 883,883 1,019,790 15.4%
    % sales 87.6% 91.7%   90.6% 92.2%  
    Staff cost 2,885 4,550 57.7% 10,037 12,972 29.2%
    % sales 1.2% 1.4%   1.0% 1.2%  
    Other expenditure 14,269 13,864 -2.8% 47,522 42,980 -9.6%
    % sales 5.9% 4.3%   4.9% 3.9%  
    Total cost 228,527 317,186 38.8% 941,442 1,075,742 14.3%
    % sales 94.7% 97.4%   96.5% 97.3%  

  • Other Income for FY08 includes Rs 3 bn (previous year: Rs 193 m) towards gain on foreign exchange variation.

  • Exceptional item for FY08 represents profit from sale of 49% stake in Bharat Shell Ltd, a joint venture with Shell Overseas Investment BV (Shell) of Holland.

  • The board of directors has recommended a final dividend of Rs 4 per share amounting to Rs to 1.5 bn including tax on dividend.

What to expect?
At the current price of Rs 280, the stock trades at a multiple of 6.4 times its standalone FY08. We advise caution at this juncture as high crude prices 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.

  • How does the recent fuel price hike impact BPCL?

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