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BPCL : Bottomline plunges

Nov 14, 2013

Bharat Petroleum Corporation Ltd (BPCL) has announced results for the second quarter of the financial year 2013-14 (2QFY14). The revenues for the quarter were up by 8.6% year on year(YoY) while net profits declined by 81.5% YoY. Here is our analysis of the results.

Performance summary
  • Revenues for the quarter were up by 8.6% YoY. For the half year (1HFY14), the revenues grew by 8.2% YoY.
  • The operating profits for the quarter declined by 68.3% YoY with operating profit margins at 2.8%, as compared to 9.5% in 2QFY13. For the half year, the operating profits stood at around Rs 26.4 bn with operating profit margins at 2.2%, as compared to operating loss of Rs 27.6 bn in 1HFY13.
  • The net profits for the quarter declined by around 81.5% with net profit margins at 1.5%, as compared to 8.9% in 2QFY13. For the half year, BPCL reported net profits of around Rs 10.8 bn, as compared to net losses of around Rs 38 bn in 1HFY13. The net profit margins for the half year stood at 0.9%, as compared to net loss margins of 3.4% in 1HFY13.
  • The market sales during the half year stood at 16.38 million metric tonnes, up 0.7% YoY
  • The average gross refining margins for the half year stood at US$ 4.38 per barrel, down 3.7% YoY.
  • The upstream discount for the half year stood at Rs 78.5 bn, up 7.9% YoY while subsidy support from Government amounted to Rs 63.2 bn, down 12.7% YoY.


Standalone performance summary
(Rs m)  2QFY13 2QFY14 Change  1HFY13 1HFY14 Change 
Net sales  568,879 617,845 8.6% 1,114,363 1,205,210 8.2%
Expenditure  514,999 600,768 16.7% 1,141,982 1,178,766 3.2%
Operating profit (EBDITA)  53,880 17,077 -68.3% -27,619 26,443 nm
EBDITA margin (%)  9.5% 2.8%   -2.5% 2.2%  
Other income  4,568 4,568 0.0% 7,706 7,951 3.2%
Interest  4,117 3,244 -21.2% 9,322 8,497 -8.8%
Depreciation  3,983 5,382 35.1% 8,784 10,687 21.7%
Profit before tax  50,348 13,019 -74.1% -38,020 15,210 -140.0%
Profit before tax margin (%)  8.9% 2.1%   -3.4% 1.3%  
Tax  0 3,708 nm 0 4,396 nm
Profit after tax/(loss)  50,348 9,311 -81.5% -38,020 10,814 nm
Net profit margin (%)  8.9% 1.5%   -3.4% 0.9%  
No. of shares (m)          723  
Diluted earnings per share (Rs)*          104  
P/E ratio(x)**          3.2  
**On a trailing 12 months basis

What has driven revenues during the quarter?
  • BPCL's net sales for the quarter grew by 8.6% YoY. This was supported by a growth in the market sales. The cash subsidy from the Government during the quarter stood at Rs 44 bn, compensating for around 50% of the gross under recoveries of Rs 88 bn.

  • The operating profit margins declined to 2.8% during the quarter as compared to 9.5% in 2QFY13. The gross refining margins (GRMs) for the quarter improved to US$ 4.65 per barrel from US$ 4.05 per barrel. However, the GRMs were significantly lower on a YoY basis. The upstream support compensated for around 48% of the gross under recoveries during the quarter. The increase in the other expenses also led to the decline in the margins.

    Cost breakup
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw material cost 499,938 562,165 12.4% 1,084,646 1,099,839 1.4%
    as a % of sales 87.9% 91.0%   97.3% 91.3%  
    Staff cost 7,345 6,681 -9.0% 13,176 14,995 13.8%
    as a % of sales 1.3% 1.1%   1.2% 1.2%  
    Other expenses 7,715 31,922 313.7% 44,160 63,932 44.8%
    as a % of sales 1.4% 5.2%   4.0% 5.3%  
    Total costs 514,999 600,768 16.7% 1,141,982 1,178,766 3.2%
    as a % of sales 90.5% 97.2%   102.5% 97.8%  

  • The net profits for the quarter declined by 81.5% YoY. The net under recoveries of the quarter stood at around Rs 2.15 bn during the quarter (2.4% of the gross under recoveries). The higher depreciation expenses also contributed to the decline in the bottomline, partially offset by decline in the interest expenses
What to expect?
As per the management, Bina refinery had a break even during the quarter. BPCL incurred a capex of Rs 20 bn during the half year. Currently, adhoc subsidy sharing mechanism and delay in diesel reform due to upcoming election remain an overhang for BPCL. Going forward, the developments in the upstream assets will also determine the performance. At the current price of Rs 346, the stock is trading at a multiple of 7.5 times its estimates earnings per share in FY16. At current price, we recommend investors to 'Hold' the stock. We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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