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BPCL: Profitability improves - Views on News from Equitymaster
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BPCL: Profitability improves
Aug 21, 2014

Bharat Petroleum Corporation Ltd (BPCL) has announced results for the quarter ended June 2014. The company has reported net sales growth of 13.7% YoY for the quarter while net profits were up over 8 times on an annual basis. Here is our analysis of the results

Performance summary
  • Revenues for the quarter were up by 13.7% YoY.
  • The operating profit for the quarter grew by 62.3% YoY, with margins at 2.3% versus 1.6% in 1QFY14.
  • The net profit for the quarter witnessed an eight fold increase with net profit margins at 1.8% versus 0.3% in 1QFY14.
  • The crude throughput for the quarter stood at 5.34 million tonnes (MT), down from 5.63 MMT in the corresponding quarter last year.
  • The market sales (including exports) for the quarter stood at 9.43 MT, up from 9.36 MT in the preceding quarter and as compared to 9.27 MMT in the corresponding quarter last year.
  • For 1QFY15, the GRMs (gross refining margins) stood at US$ 3.38 per barrel, down from US$ 4.05 per barrel in 1QFY14.
  • For 1QFY15, the company received discount of Rs 38.3 bn from the upstream segment (as compensation for under recoveries), up 4.5% YoY while subsidy support from Government amounted to Rs 24 bn, up 25.6% YoY.
  • BPCL absorbed net under recoveries of Rs 5 bn for 1QFY15, down 7.5% YoY.

Financial snapshot
(Rs m) 1QFY14 1QFY15 Change 
Net sales  587,364 667,902 13.7%
Expenditure  577,999 652,701 12.9%
Operating profit (EBDITA)  9,366 15,201 62.3%
EBDITA margin (%)  1.6% 2.3%  
Other income  3,383 10,232 202.5%
Interest  5,253 1,948 -62.9%
Depreciation  5,305 5,572 5.0%
Profit before tax  2,191 17,913 717.6%
Profit before tax margin (%)  0.4% 2.7%  
Tax  688 5,751 736.3%
Profit after tax/(loss)  1,503 12,163 709.1%
Net profit margin (%)  0.3% 1.8%  
No. of shares (m)    723  
Diluted earnings per share (Rs)*    70.9  
P/E ratio(x)*   9.6  
**On a trailing 12 months basis

What has driven performance during the quarter?
  • BPCL reported 13.7% YoY growth in the revenues on the back of higher market sales and rupee depreciation. However, a decline in crude throughput restricted the growth.

  • At operating level, the company reported growth of 62.3% YoY due to lower other expenses and staff costs (both as a % of sales). However, the gross refining margins declined during the quarter. BPCL incurred net under recoveries worth Rs 5 bn for the quarter.

    Cost breakup
    (Rs m) 1QFY14 1QFY15 Change 
    Raw material cost 537,674 619,679 15.3%
    as a % of sales 91.5% 92.8%  
    Staff cost 8,314 7,903 -4.9%
    as a % of sales 1.4% 1.2%  
    Other expenses 32,010 25,119 -21.5%
    as a % of sales 5.4% 3.8%  
    Total costs 577,999 652,701 12.9%
    as a % of sales 98.4% 97.7%  

  • The net profits for the quarter stood at Rs 12.2 bn , up from Rs 1.5 bn on the back of strong operating performance, a three fold increase in the other income (due to foreign currency translation gain) and decline in the interest costs.
What to expect?
The company is planning to invest further in upstream segment and is planning expansion at Kochi refinery. The phased decline in diesel prices has benefitted state run oil marketing companies. While the move is likely to reduce under recoveries, it will attract competition from Private players. Still, BPCL is better placed than its peers because of its exposure to E&P (Exploration and Production) segment. The stock price for BPCL has seen a significant run up of around 91% in the year till date. We believe that current valuations already capture the positives and leave limited upside potential. As such we recommend investors to Sell the stock. We had released a special report for the same.

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