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BPCL: The tide turns - Views on News from Equitymaster

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BPCL: The tide turns

Jul 28, 2009

Performance summary
  • Topline declines by 35% YoY during 1QFY10 due to lower realisations.
  • EBITDA margins turnaround from a -2% in 1QFY09 to 3% in 1QFY10 due to lower under recoveries on petroleum products.
  • Other income zooms by 147% YoY during the fiscal.
  • Interest cost declines by 5% during FY09.
  • Bottomline also turns positive on the back of the reversal in operating margins and higher other income.

Standalone Financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 390,220 255,144 -34.6%
Expenditure 397,913 247,474 -37.8%
Operating profit (EBDITA) (7,693) 7,670  
EBDITA margin (%) -2.0% 3.0%  
Other income 2,757 6,812 147.1%
Interest 3,016 2,866 -5.0%
Depreciation 2,691 2,311 -14.1%
Profit before tax (10,643) 9,306  
Tax 24 3,165  
Profit after tax/(loss) (10,667) 6,141  
Net profit margin (%) -2.7% 2.4%  
No. of shares (m)   361.5  
Diluted earnings per share (Rs)*   66.8  
Price to earnings ratio (x)*   6.9  
*On a trailing 12 months basis

What has driven performance in 1QFY10?
  • The gross refining margin http for BPCL during 1QFY10 was US$ 1.44 per barrel (US$ 9.3 per barrel in 1QFY09) for its Mumbai refinery and US$ 7.27 per barrel (US$ 18.65 per barrel in 1QFY09) for its Kochi Refinery.

  • On the volumes front, the market sales for BPCL during 1QFY10 were marginally lower at 6.94 m tonnes (MMT) from 6.96 MMT during 1QFY09. The company registered an increase in the volume of petrol (10%), LPG (3.5%) and diesel (2.7%). It was more than offset by a reduction in the volume of jet fuel (27%) and naphtha (-18%).

  • BPCL’s under recovery on diesel, petrol, PDS kerosene and domestic LPG was partially compensated by the upstream oil companies during the period. Accordingly, a discount of Rs 1.6 bn (Rs 26.6 bn during 1QFY09) was received for the purchase of crude oil, kerosene and LPG from ONGC and GAIL

  • BPCL claimed subsidy from the government towards sale of PDS Kerosene and domestic LPG amounting to Rs 1.4 bn during 1QFY10 (Rs 1.4 bn in 1QFY09).

  • Other Income for 1QFY10 includes Rs 2.3 bn towards gains on foreign exchange fluctuations (foreign exchange losses during 1QFY09 of Rs 4.3 bn were accounted as other expenditure).

  • BPCL’s raw materials cost (as a % of sales) declined by 6% on a YoY basis from 94.4% in 1QFY10 to 88.9% in 1QFY09.

What to expect?
At the current price of Rs 463, the stock trades at a multiple of 6.9 times its trailing 12 months standalone 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. 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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