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BPCL: Losses widen on higher under recoveries

Aug 13, 2012

Bharat Petroleum Corporation Ltd (BPCL) has announced results for the quarter ending June 30, 2012 (1QFY13). During the quarter, the company has reported 18.2 % year on year (YoY) growth in sales and more than threefold decline in the bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • For the quarter, sales were up 18.2% YoY.
  • The operating losses for the quarter registered a fourfold increase (YoY). The loss margins for the quarter stood at 14.9% (up from 4.7% in 1QFY12).
  • During the quarter, the net losses were up 3.4 times of those witnessed in 1QFY12.
  • The crude throughput during the quarter stood at 5.9 MMT (million metric tons), up 13.7% YoY, but down by 1.7% on a quarter on quarter (QoQ) comparison.
  • The domestic market sales during the quarter stood at 8.5 MMT, up 8.6% YoY.
  • BPCL's borrowings at the end of June quarter stood at Rs 286 bn, up 24.5% as compared to the debt levels at the end of March 2012.

(Rs m) 1QFY12 1QFY13 Change
Net sales 461,449 545,484 18.2%
Expenditure 482,965 626,984 29.8%
Operating profit (EBDITA) -21,516 -81,500 nm
EBDITA margin (%) -4.7% -14.9%  
Other income 4,147 3,138 -24.3%
Interest 3,349 5,205 55.4%
Depreciation 4,901 4,801 -2.0%
Profit before tax -25,619 -88,368 nm
Profit before tax margin (%) -5.6% -16.2%  
Tax 0 0 nm
Profit after tax/(loss) -25,619 -88,368 nm
Net profit margin (%) -5.6% -16.2%  
No. of shares (m)   723  
Diluted earnings per share (Rs)*   -68.6  
P/E ratio(x)*   nm  
*On a trailing 12 months basis

What has driven performance in 1QFY13?
  • The growth in revenues stood at 18.2% YoY for the quarter. The market sales for the quarter were 8.5 MMT (million metric tonnes), up 8.6% YoY while sales volumes from exports was almost at the same level (0.68 MMT versus 0.7 MMT in 1QFY12). Productwise, high speed diesel (HSD) registered a sales growth of 15.4% YoY, petrol sales were up by 4.8% YoY and Liquefied Petroleum Gas (LPG) sales were up by 8.5% YoY.

  • BPCL registered losses at operating income level due to losses on selling sensitive petroleum products and no compensation from the Government towards under recoveries. The gross under recovery losses stood at Rs 116.3 bn during the quarter, up 13.0 % YoY. As compared to an inventory gain of Rs 11 bn in 1QFY12, the gains for the current quarter stood at Rs 1.3 bn. The loss margins for the quarter stood at 14.9% as compared to 4.7% in 1QFY12.

  • Overall gross refining margins (GRMs) for the quarter stood at US$ 2.62 per barrel, up from US$ 2.1 (on a comparable basis) per barrel in 1QFY12. As per the management, the GRM calculation will now include RLNG costs which were earlier a part of operating costs. The impact of the new methodology will be around US$ 1.52 per barrel for the Mumbai refinery. The Mumbai refinery's GRM stood at US$ 1.58 per barrel while the GRMs of Kochi refinery stood at US$ 3.98 per barrel for the quarter. The GRMs were better as compared to last year due to higher throughput in Kochi refinery (last year , the throughput at Kochi was lower on account of a maintenance shutdown). The total thruput for the quarter stood at 5.91 MMT, up from 5.2 MMT in 1QFY12. This was mainly on account of improvement in throughput of Kochi refinery that faced maintenance shutdown in 1QFY12.

    Cost Breakup
    (Rs m) 1QFY12 1QFY13 Change
    Raw materials 462,461 584,708 26.4%
    % sales 100.2% 107.2%  
    Staff cost 6,489 5,832 -10.1%
    % sales 1.4% 1.1%  
    Other expenditure 14,015 36,445 160.0%
    % sales 3.0% 6.7%  
    Total cost 482,965 626,984 29.8%
    % sales 104.7% 114.9%  

  • The net losses for the quarter were up 3.4 times the losses in 1QFY12. This was mainly due to losses at operating income level. Besides, the interest expenses during the quarter were up by 55.4% YoY. The company also incurred forex losses of around Rs 16 bn during the quarter. The net under recoveries absorbed by the company during the quarter stood at Rs 79.6 bn (up 137% YoY).

What to expect?
In the upstream segment, the company has already had successful appraisals for 30 to 60 trillion cubic feet (tcf) of gas. Besides, there have been some discoveries in Brazil for which there is no quantification as yet. The company plans to spend considerable amounts on both upstream and refining and marketing segments. The capacity utilization at Bina refinery has also improved to 96% and the company expects it to improve further to 100% by the end of this quarter.

However, the uncertainties clouding the refining business still persist. The company has incurred under recovery losses of Rs 6 bn just on the sale of Petrol which is not even under administered price regime. It is losing almost Rs 1 bn a day on account of under recoveries on the sale of sensitive petroleum products. That said, as compared to other state run oil refiners, the company has an edge on account of its upstream assets. However, at current stock price, the stock is up almost 47% as compared to the start of calendar year 2012. Hence, we suggest our investors to Hold the stock.

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