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BRPL: IOC the key

Aug 28, 2003

Bongaigaon Refinery and petrochemicals Limited, announced its quarterly results reporting a 37% growth in its topline while bottomline increased significantly by 167%. The strong performance of the company has been led mainly by higher capacity utilisation as well as reduction in its operating expenses. Let us analyse the results in detail.

(Rs m) 1QFY03 1QFY04 Change
Net sales 3,886 5,327 37.1%
Net claim from oil pool account (65) -  
Other Income 322 850 164.0%
Expenditure 3,476 4,869 40.1%
Operating Profit (EBDIT) 345 458 32.8%
Operating Profit Margin (%) 8.9% 8.6%  
Interest 88 52 -40.6%
Depreciation 78 75 -3.0%
Profit before Tax 502 1,181 135.2%
Tax 180 322 78.6%
Profit after Tax/(Loss) 322 859 166.8%
Net profit margin (%) 8.3% 16.1%  
No. of Shares 199.8 199.8  
Diluted earnings per share* 6.4 17.2  
P/E Ratio   4.5  

BRPL reported a healthy growth in its topline on account of higher capacity utilization up from 64% in 1QFY03 to 88% in 1QFY04. This increase in capacity utilization was mainly on account of the company receiving additional Ravva crude oil of about 1.5 m tonnes from Krishna Godavari Basin. The company, a subsidiary of IOC, is expected to operate at about 85% capacity utilization for the current year and this will help to increase its topline as well as improve the margins during the entire year. This apart, higher realisation also led to an increase in topline.

Increase in volumes and also higher crude prices as compared to last year resulted in an increase in raw material costs (as a percentage of sales raw material costs increased from 87% in 1QFY03 to 94% in 1QFY04). However the company was able to reduce its staff costs and also kept its other expenses under control. This coupled with inventory gains helped it to bring expenses under control. However, on an overall basis, total expenses as a percentage of sales increased marginally and this resulted in a marginal decline in the operating profit margins. BRPL reported an increase in refinery margins on account of higher capacity utilization. It should be noted that being in North Eastern region, the company also enjoys benefit on the excise duty front.

Apart from increase in refinery margins, the company was able to reduce its interest outgo and this also aided bottomline growth. Depreciation also witnessed a decline during the quarter. Consequently the company reported a significant jump of about 167% in bottomline.

segment wise breakup
Net sales 1QFY03 1QFY04
Refinery segment 4,197 5,846
Petrochemicals segment 131 153
PSF segment 113 2
PBIT margins 1QFY03 1QFY04
Refinery segment 15.9% 21.4%
Petrochemicals segment -9.4% 20.9%
PSF segment -67.7% -3947.1%
(figures in m)    

If one were to look at the segment wise breakup, refinery and petrochemicals business of the company reported improvement in PBIT margins. While the PSF unit is in losses. On account of poor economic size of its PSF and petrochemicals plants, the units are currently shut down. A significant chunk of its revenues comes from refinery business only.

At Rs 78, the stock is trading at a P/E multiple of 4.5x its 1QFY04 earnings (8.8x its FY03 earnings). IOC is likely to play a key role in the fortunes of the company going forward as increasingly BRPL will be able to sell its products to IOC. This means better capacity utilisation for the company and consequently improvement in its overall refinery efficiencies. This is an important factor considering the fact that the country is facing oversupply scenario in petroleum products and increasing competition in marketing front.

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