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BPCL: GOI compensation keeps BPCL in black
Nov 17, 2010

BPCL has announced 2QFY11 results. It has reported a 31% YoY growth in topline and a positive bottomline. Here is our analysis of the results.

Performance summary
  • Topline rises by 31% YoY during 2QFY11 post petrol price deregulation.
  • EBITDA margins turn positive to 7.0% in 2QFY11 from a -0.4% in 2QFY10 due to efficient cost management.
  • Other income grows by 27% YoY during the quarter.
  • Interest cost rises by 4% during 2QFY11.
  • PAT came at Rs. 21bn for the quarter vs. Rs. 1.6 bn loss (YoY) on account of higher cash compensation by Government.Net margin for 2QFY 11 stood at 6.1%.


Standalone Financial snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 270,923 354,348 30.8% 526,067 696,673 32.4%
Expenditure 271,873 329,483 21.2% 519,347 685,867 32.1%
Operating profit (EBDITA) -950 24,865   6,720 10,806 60.8%
EBDITA margin (%) -0.35% 7.02%   1.28% 1.55%  
Other income 4,211 5,336 26.7% 11,023 8,545 -22.5%
Interest 2,673 2,780 4.0% 5,538 5,103 -7.8%
Depreciation 3,088 4,019 30.1% 5,399 8,026 48.7%
Profit before tax -2,500 23,402   6,806 6,221 -8.6%
Tax -912 1980   2,253 1980 -12.1%
Profit after tax/(loss) -1,588 21,422   4,553 4,241 -6.8%
Net profit margin (%) -0.6% 6.0%   0.9% 0.6%  
No. of shares (m) 361.5 361.5   361.5 361.5  
Diluted earnings per share (Rs)*         41.7  
P/E ratio(x)*         17.4  
*On a trailing 12 months basis

What has driven performance in 2QFY11?
  • Besides an increase in crude throughput and direct market sales (up 1.5% YoY), the deregulation of petrol prices helped BPCL to register 31% YoY increase in sales.

  • Despite a lower gross refining margin of USD 3.19 per barrel for the quarter vs. USD 3.53 per barrel (YoY), the EBITDA margins for the quarter turned positive on account of increase in inventory gain and 18% YoY reduction in the employee costs.

    Cost break-up
    (Rs m) 2QFY10 2QFY11 Change
    Raw materials 248,321 301,556 21.4%
    % sales 91.66% 85.10%  
    Staff cost 5,534 4,526 -18.2%
    % sales 2.04% 1.28%  
    Other expenditure 18,018 23,401 29.9%
    % sales 6.7% 6.6%  
    Total cost 271,873 329,483 21.2%
    % sales 100.4% 93.0%  

  • BPCL has a positive under recovery amounting to Rs. 13 bn during the quarter on account Government compensation. The upstream players compensated 33% of the gross under recoveries.

What to expect?
At current price of Rs. 724, the stock trades at a multiple of 21 times our expected FY13 consolidated earnings. We continue to advise caution on the stock as interest costs and regulatory concerns will continue to impact the short-term performance of the company. The management expects gross refining margins to remain at the same level and has no immediate capacity expansion plans for Bombay and Kochi refinery though Bina refinery is expected to commission by December. Moreover, given their ‘aam aadmi’ mandate, the government seems unlikely to bite the bullet when it comes to deregulation of prices of fuel other than petrol.

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