Bharat Petroleum Corporation Ltd. (BPCL) has posted a gross turnover of Rs 69.7 bn (up 12% YoY) and a net profit of Rs 2 bn (up 25% YoY) for the quarter ended 30th June 1999.
BPCL is an integrated oil company operating refining as well as marketing facilities. Its sole refinery has a capacity of 7.3 mn tons per annum. Its strengths lie in an efficient refinery and a strong distribution network (20% market share). BPCL is the 4th largest player in the lubricants (8% market share) market and has a tie up with Shell to manufacture and market Shell's lubricants.
While sales have registered a growth of 12%, expenditure has grown by over 16%, implying a fall in operating margins. Moreover, the other income has declined 37% to Rs 301 mn. Despite this the company has been able to post a better net profit margin. This is due to the 35% drop in interest costs.
The Indian petroleum sector is expected to witness increasing competition. This is likely to lead to thinner margins and more volatile earnings as government protection is removed. However, BPCL, has an edge over competition mainly due to its strong marketing network.
The company's arrangement with Shell has given its image a boost. Also, such an arrangement will prove to be a great learning experience for BPCL, enabling it to acquire the latest in technology and servicing skills.
Analysts have rated the stock as a 'BUY' mainly on account of its strong distribution network, which will make it a key player in the domestic petroleum segment in the future.
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