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BPCL: Margins on the upswing

Jun 23, 2009

Performance summary
  • Topline increases by 22% YoY during FY09.
  • EBITDA margins decline from 2.8% in FY08 to 2.1% in FY09.
  • Other income increases by 14% YoY during the fiscal.
  • Interest cost zooms 222% during FY09.
  • Bottomline declines by 53% during the fiscal due to lower operating profit.
  • For 4QFY09, topline declines by 19%, while the bottomline zooms on the back of a turnaround in margins.

Standalone Financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 325,786 265,253 -18.6% 1,105,468 1,353,315 22.4%
Expenditure 317,186 223,519 -29.5% 1,074,182 1,325,004 23.4%
Operating profit (EBDITA) 8,600 41,734 385.3% 31,286 28,311 -9.5%
EBDITA margin (%) 2.6% 15.7% 2.8% 2.1%
Other income 1,343 5,901 339.4% 12,394 14,150 14.2%
Interest 2,156 6,149 185.2% 6,725 21,664 222.1%
Depreciation 3,319 2,631 -20.7% 10,982 10,755 -2.1%
Profit before tax 4,468 38,854 769.6% 25,973 10,041 -61.3%
Tax 3,884 2,574 10,167 2,682 -73.6%
Profit after tax/(loss) 584 36,280 15,806 7,359 -53.4%
Net profit margin (%) 0.2% 13.7% 1.4% 0.5%
No. of shares (m) 362
Diluted earnings per share (Rs) 20
Price to earnings ratio (x) 20

What has driven performance in FY09?
  • The gross refining margin for BPCL during FY09 was US$ 4.48 per barrel (US$ 4.6 per barrel in FY08) for its Mumbai refinery and US$ 6.27 per barrel (US$ 7.18 per barrel in FY08) for its Kochi Refinery.

  • On the volumes front, the market sales for BPCL during FY09 increased to 27.16 m tonnes (MMT) from 25.79 MMT during FY08. The overall increase is mainly due to an increase in the volume of diesel (11%), petrol (11%), Naphtha (10%) and LPG (3%). It was offset by a reduction in the volume of furnace oil (-6%).

  • BPCL's under recovery on diesel, petrol, PDS kerosene and domestic LPG was compensated by the upstream oil companies and government bonds during the period. Accordingly, a discount of Rs 76 bn (Rs 60 bn during FY08) was received for the purchase of crude oil, kerosene and LPG from ONGC and GAIL. Moreover, the company has accounted for Rs 162 bn of oil bonds for FY09 (Rs 86 bn for FY08). It may be noted that the company is yet to receive bonds worth Rs 21 bn out of these.

  • BPCL claimed subsidy from the government towards sale of PDS Kerosene and domestic LPG amounting to Rs 5.7 bn during FY09 (Rs 5.5 bn in FY08).

  • BPCL's other expenditure during FY09 includes losses of Rs 13 bn on foreign exchange fluctuations. (During 9mFY08, there were gains on foreign exchange fluctuations to the tune of Rs 2.5 bn which were accounted as other income).

  • During 4QFY09, BPCL's raw materials cost (as a % of sales) declined to 76.3% from 91.7% on a YoY basis.

What to expect?
At the current price of Rs 416, the stock trades at a multiple of 20 times its FY09 standalone earnings. We continue to advise caution on the stock as the Rupee-Dollar exchange rates, 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. Moreover, given their 'aam aadmi' mandate, the government seems unlikely to bite the bullet when it comes to genuine deregulation of fuel prices.

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Feb 27, 2020 11:09 AM