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BPCL: Hit by a falling Rupee - Views on News from Equitymaster

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BPCL: Hit by a falling Rupee
Nov 12, 2008

Performance summary
  • Topline increases by 50% YoY during 2QFY09.
  • EBITDA margins plunge into the negative.
  • Other income declines by 18% YoY during the quarter.
  • Bottomline plummets into the red owing to operating losses.
  • For 1HFY09, the topline grows by 57% while the bottomline turns negative.


Standalone Financial snapshot
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 251,704 378,507 50.4% 490,398 768,727 56.8%
Expenditure 236,055 399,936 69.4% 472,689 797,849 68.8%
Operating profit (EBDITA) 15,649 (21,429)   17,709 (29,122)  
EBDITA margin (%) 6.2% -5.7%   3.6% -3.8%  
Other income 3,652 2,980 -18.4% 7,993 5,737 -28.2%
Interest 1,228 5,338 334.7% 2,468 8,354 238.5%
Depreciation 2,322 2,419 4.2% 4,598 5,110 11.1%
Profit before tax 15,751 (26,207)   18,636 (36,850)  
Tax 5,369 46 -99.1% 6,327 70 -98.9%
Profit after tax/(loss) 10,382 (26,253)   12,309 (36,920)  
Net profit margin (%) 4.1% -6.9%   2.5% -4.8%  
No. of shares (m)         362  

What has driven performance in 1HFY09?
  • The gross refining margin for BPCL during 1HFY09 was US$ 5.3 per barrel (US$ 4.54 per barrel in 1HFY08) for its Mumbai refinery and US$ 11.77 per barrel (US$ 6.32 per barrel in 1HFY08) for its Kochi Refinery.

  • On the volumes front, the market sales for BPCL during 1HFY09 have increased to 13.23 m tonnes (MMT) from 12.10 MMT during 1HFY08. The increase is mainly due to increase in volumes of diesel (17%), petrol (13%), Jet fuel (10%), LPG (6%) and Naphtha (14%). It was offset by reduction in volumes of furnace oil (-8%).

  • BPCLs results for 1HFY09 have been adversely affected due to the impact on account of high crude oil and product prices, which could not be fully passed on to the consumers. The under recovery on diesel, petrol, PDS kerosene and domestic LPG was partially compensated by the upstream oil companies during the quarter. Accordingly, discount of Rs 61 bn (Rs 20 bn during 1HFY08) was received for the purchase of crude oil, kerosene and LPG from ONGC and GAIL. Moreover, the company has accounted for Rs 105 bn of oil bonds for 1HFY09 (Rs 25 bn for 1QFY08).

  • BPCL claimed subsidy from the government towards sale of PDS Kerosene and domestic LPG amounting to Rs 2.8 bn during 1HFY09 (Rs 2.7 bn in 1HFY08).

  • BPCLs other expenditure during 1HFY09 zoomed 69% due to losses on foreign exchange fluctuations to the tune of Rs 11 bn. (During 1HFY08, there were gains on foreign exchange fluctuations to the tune of Rs 3.3 bn which were accounted as other Income).

What to expect?
    At the current price of Rs 313, the stock trades at a multiple of 6 times our estimated FY10 earnings. We continue to advise caution on the stock as the rupee dollar exchange rate 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.

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