BPCL - E&P levers to play out in FY14E - Centrum

Government lent a helping hand with over Rs250bn cash compensation to the OMCs for losses incurred in the quarter which led to BPCL reporting Rs16.5bn PAT for Q3. Lower petroleum product cracks led to contraction in GRMs on a sequential basis at US$4.8/bbl. Crude throughput was also lower by 6.6% QoQ at 5.6mmt due to planned shutdown at Kochi refinery while the company's market sales jumped by 9.0% QoQ at 8.5mmt with additional quantities bought and marketed from Bina refinery. BPCL's under-recoveries for the quarter stood at Rs93.7bn which were mostly compensated through Rs36.0bn upstream support and Rs59.9bn from the government while the company absorbed Rs2.2bn. Reserve certification for Mozambique and Brazil blocks is expected by end 2013/ early 2014 which will be a key catalyst to watch out for. Maintain 'Buy'.

Higher market sales lead to higher revenues: BPCL's revenues soared by 9.6% QoQ and 6.0% YoY at Rs623.7bn primarily owing to 9.0% QoQ and 5.3% YoY jump in market sales at 8.5mmt despite lower throughput at 5.6mmt.

GRMs decline, government compensation benefits: Pressure in petroleum product cracks led to contraction in Q3 GRMs which came in at US$4.8/bbl against US$6.5/bbl in Q2. The company incurred forex losses of Rs4.0bn which were mostly offset by inventory gains of Rs3.3bn. Total under-recoveries for the quarter stood at Rs93.7bn which were duly compensated by Rs36.0bn in subsidies from the upstream companies and Rs59.9bn compensation from the government with over-recovery of Rs2.2bn compensated for losses during earlier quarters.

Borrowings rise: Interest burden jumped substantially QoQ by 39.9% at Rs5.8bn as the company's borrowings jumped from Rs256bn by H1FY13 to Rs309bn by Q3FY13. Overall, the company was able to report Rs16.5bn PAT for the quarter yet it reported Rs21.5bn loss for 9MFY13 due to inadequate government compensation for under-recoveries incurred in 9MFY13.

Reserve certification for Mozambique and Brazil blocks expected in FY14E: Bina refinery is now operating at about 85-90% utilisation which is likely to improve going forward. The losses on Bina have reduced with Q3 loss at about Rs1bn and cumulative loss of about Rs9bn during 9MFY13. Bina may turn around in FY14E if the refining scenario improves with higher utilisation rates. However, the main lever for FY14E remains the reserve certification for Mozambique and Brazil blocks which is expected by end 2013/ early 2014. Policy initiatives like monthly diesel price hike could lead to re-rating of the stock. We like BPCL among the OMCs due to its operational superiority and unfolding E&P story. Hence, we maintain 'Buy' on the stock with a marginally revised price target of Rs458 (earlier Rs445).

Source : Equity Bulls

Keywords