Maintain ADD on Bharat Petroleum Corporation - Blockbuster dividend! - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities and Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

We maintain ADD on Bharat Petroleum (BPCL) with a price target of INR 500, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins. 4Q EBITDA/APAT were 161/190% higher than our estimates, owing to higher-than-expected GRM and higher-than- expected marketing throughput. Total inventory gains were INR 36bn. Forex gain stood at INR 0.3bn. Adjusting for these, core EBITDA stood at INR 14bn (HSIE INR 6bn).

Refining: Crude throughput in 4Q stood at 8.4mmt (+0.0/+15.9% YoY/QoQ). Utilisation at the refineries improved to 112% as demand was robust in 4Q. Core GRM stood at USD 2.5/bbl vs. USD 7.3/1.2 YoY/QoQ.

Marketing: Domestic marketing sales volume was 11.2mmt (+4/1% YoY/QoQ). Blended gross margin stood at INR 4.3/lit (-9/-24% YoY/QoQ). Blended gross margin was INR 5.4/lit for FY21. We expect blended gross margin to correct to INR 4.8/5.0/lit in FY22/23E.

Call takeaways: (1) Capex spent in FY21 was INR ~111bn and guidance for FY22 is of INR 120bn. (2) Debt at the end of 4Q was INR 263bn, with a debt- equity ratio of 0.5x. (3) Two out of the three units of the Propylene Derivatives Petrochemical Project (PDPP) at Kochi were commissioned in 4Q, and one unit is undergoing commissioning. Production from the PDPP will be ramped up in 2HFY22. On a full year basis, this project shall contribute a GRM of USD 1/bbl. (4) The Board has declared a final dividend of INR 58/sh (total dividend of INR 79/sh) for FY21. (5) Disinvestment of the entire equity stake held by BPCL in Numaligarh Refinery Ltd (subsidiary) was completed on 25 March'21 for a consideration of INR 98.75bn. (6) Bharat Oman Refineries Ltd would become a wholly-owned subsidiary of BPCL on 15 June'21.

Change in estimates: We cut our FY22/23 EPS estimates by 29.3/26.1% to INR 37.6/44.6 per share to account for the overall performance in FY21 and a change in core GRM and throughput assumptions.

SOTP-based valuation: Our price target comes to INR 500/sh (5.5x Mar-23E EV/e for the standalone refining and marketing businesses, 6x Mar-23E EV/e for the pipeline business, and INR 108/sh for other investments). The stock is currently trading at 10.5x on FY23E EPS.

Shares of BHARAT PETROLEUM CORPORATION LTD. was last trading in BSE at Rs.471.6 as compared to the previous close of Rs. 467.75. The total number of shares traded during the day was 754162 in over 14831 trades.

The stock hit an intraday high of Rs. 480 and intraday low of 468.6. The net turnover during the day was Rs. 357516951.

Source : Equity Bulls

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