BPCL - Government compensation for H1 leads to profitability in Q2 - Centrum

Government compensation of Rs300bn for the under-recoveries incurred during H1FY13 led to profitability of all OMCs including BPCL. The company bettered its Q2 operational performance with US$6.4/bbl in GRMs and higher throughput of 5.94mmt. Bina refinery throughput was lower at 1.0mmt due to operational issues but GRMs remained healthy at US$7.7/bbl. With the revision in petrol prices during Q2, the company has stopped incurring any losses on petrol. Although, BPCL reported PAT of Rs50.3bn in Q2, under-recoveries' absorption of Rs61.3bn during H1 led to a loss Rs38.0bn for H1FY13. We like BPCL due to its E&P success and hence maintain our 'Buy' rating on the stock.

Lower market sales yet rupee depreciation leads to higher revenues: BPCL's revenues jumped by 34.5% YoY at Rs568.9bn backed by 10.4% increase in market sales at 7.8mmt and higher product prices due to rupee depreciation. Throughput also inched up 6.5% YoY and 0.5% QoQ at 5.9mmt.

Forex and inventory gains further support profitability: BPCL's operational performance was better with average GRMs of US$6.4/bbl in Q2 and US$4.6/bbl in H1. The company had inventory gains of Rs4.4bn while favourable exchange rate led to Rs11.7bn in forex gains. Upstream companies offered Rs36.2bn in discounts to BPCL while government compensation for H1FY13 was at Rs72.4bn which led to BPCL posting PAT of Rs50.3bn. However, due to absorption of Rs61.3bn in under-recoveries during H1, the company incurred a loss of Rs38.0bn during H1FY13. The company holds a debt of Rs256.0bn of which over 80% is foreign currency debt. BPCL also holds oil bonds of Rs64.8bn.

E&P story to be unfolded in 2013: Bina refinery's operational performance was better with GRMs at US$7.7/bbl and it is expected to perform better going ahead. BPCL did not incur any under-recoveries on petrol during Q2 due to the revision in petrol prices (Q1 under-recoveries on petrol - Rs6.0bn) and even now the company is not losing money on the sale of petrol. BPCL has invested over Rs15.0bn during H1 and is planning to invest over Rs35.0-40.0bn (including E&P) during FY13E. We like BPCL due to its exposure to E&P which has been successful so far. The E&P story is likely to unfold further in 2013 when the reserve estimates for Mozambique block will be available. Hence we like BPCL due to the value from its E&P and maintain 'Buy' with a revised price target of Rs448 (earlier Rs464).

Source : Equity Bulls

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