• JUNE 6, 2001

BPCL: Towing HPCL's line

Bharat Petroleum Corporation Ltd. (BPCL), the downstream oil major, has reported an impressive turnover growth of 37.6% for FY01. However, the YoY sales growth has declined in each successive quarter of the fiscal ended March '01. The turnover growth for 9m FY01 was 47.2%. This performance is very similar to its competitor, Hindustan Petroleum (HPCL).

(Rs m)4QFY004QFY01ChangeFY00FY01Change
Sales 114,621 125,879 9.8% 333,847 459,321 37.6%
Other Income 557 1,721 209.0% 1,482 3,003 102.6%
Expenditure 110,598 123,492 11.7% 317,952 441,992 39.0%
Operating Profit (EBDIT) 4,023 2,387 -40.7% 15,895 17,329 9.0%
Operating Profit Margin (%)3.5%1.9% 4.8%3.8% 
Interest 637 690 8.3% 1,854 2,556 37.9%
Depreciation 1,899 1,208 -36.4% 6,154 6,645 8.0%
Profit before Tax2,0442,2108.1% 9,369 11,13118.8%
Tax 499 610 22.2% 2,330 2,930 25.8%
Profit after Tax/(Loss) 1,545 1,600 3.6% 7,039 8,201 16.5%
Net profit margin (%)1.3%1.3% 2.1%1.8% 
No. of Shares (eoy) 150 300   150 300  
Diluted Earnings per share*20.621.3 23.527.3 
P/E Ratio 8.5  6.7 

The increase in sales for FY01 have been mainly driven by higher realisations as the Government revised petroleum product prices towards the end of 2QFY01. The company has recorded sales volume growth of 3%, which could be due to increase in products purchased for re-sale. The through-put of the company has declined marginally from 8.9 MMTPA to 8.7 MMTPA.

The strong growth in sales has been accompanied with an even higher growth in operating costs, which has adversely affected the OPM. Raw material expenses grew by only 26.7%. With crude oil prices surging from $16 / barrel to above $30 / barrel in FY01, one would have expected feedstock costs to rise more rapidly. Raw material expenses of HPCL grew by 56% during the same period. However, staff costs have grown by 48%, which is higher compared to its competitor (30%). The largest cost component, purchase of products for re-sale, has increased by 42.8% in value terms.

Consequently, the OPM has come under pressure, which has declined by 100 basis points and 160 basis points in FY01 and 4QFY01 respectively. The decline in OPM has adversely affected the operating profit growth of the company.

The increase in interest expense could be due to the blockage of funds in the oil pool account. Consequently, the company had to resort to short-term borrowings for meeting working capital requirement. The oil pool account is estimated to have registered a deficit of Rs 120 bn in FY01. YoY increase in interest costs for 4QFY01 is lower compared to the full year, which is due to the predicament of higher interest burden from 4QFY00.

Pre-tax profits and post tax profits have been buoyed by other income, which has increased substantially YoY. Most of the other income has been recorded in 4Q (57% of full year figure). Other income for 9m FY01 stood at Rs 1,282 m. A third of the other income has accrued from the LPG tatkal scheme. Removing other income from the income statement, the full year PAT would have dropped by 6% YoY. The effective tax has increased by 140 basis points to 26.3%.

At Rs 182 the company trades on an earnings multiple of 6.7x FY01 earnings. The three year average P/E multiple for the company is 10x.

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