PL Stock Report: Bharat Petroleum Corporation (BPCL IN) - Q2FY24 Result Update – Gross marketing margins drag earnings - HOLD

Bharat Petroleum Corporation (BPCL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs347 | TP: Rs365

Q2FY24 Result Update – Gross marketing margins drag earnings

Quick Pointers:

§ GRM at US$18.5/bbl came in higher than our estimate of US$17.4/bbl.

§ Implied gross marketing margin at Rs 6/ltr (down 36% QoQ) against a loss of Rs 0.6/ltr in Q2FY23.

Bharat Petroleum Corporation (BPCL) reported better than expected Q2FY24 results with an EBITDA of Rs 129.1 bn (down 18% QoQ, PLe: Rs 109.4 bn). Reported PAT came in at Rs 85 bn (down 19% QoQ, PLe: Rs 66.7 bn). Decline in earnings was primarily due to fall in gross marketing margins. Gross debt stands at Rs225.7 bn while cash and bank balance stands at Rs 50.3 bn and 110.5 bn, respectively. Going ahead, we build in GRMs of US$6/bbl and a gross marketing margin of Rs 4.1/ltr for FY25/26E. The stock is currently trading at 1.1x P/BV and 7x EV/EBITDA. Factoring in the upcoming elections and inability to pass on the increase in fuel costs on the marketing side and softening of GRMs in the current quarter, we maintain ‘Hold’ rating with a TP of Rs 365 based on 1x FY26 P/BV.

§ Operating performance declines QoQ: BPCL’s operating profit at Rs 129.1 bn fell 18% QoQ due to lower gross marketing margins. However, on a YoY basis, EBITDA grew sharply by 6.4x mainly due to losses in marketing segment. For H1FY24, EBITDA came in at Rs287.2 bn against a loss of Rs 28.8 bn in H1FY23. Similarly, PAT for H1FY24 stood at Rs 190.5 bn vs a net loss of Rs 65.7 bn in H1FY23. Debt as on 30th Sept stood at Rs 225.7bn (excludes lease liability of Rs 88.2bn due to implementation of IND AS 116)

§ Refining margins higher than anticipated: Refining throughput for Q2 stood at 9.4 mmt, down 10% QoQ due to maintenance shutdown at Bina refinery in July. Reported GRM came in at US$18.5/bbl above PLe of US$17.4/bbl. Singapore GRMs have softened in Q3FY24YTD owing to demand concerns and are at around US$4.6/bbl (average as on 20th Oct). Going ahead, we anticipate BPCL’s GRM at US$10.7/6/6/bbl for FY24/25/26E.

§ Marketing margins decline sequentially: Marketing sales for Q2 were 12.2 mmt, in-line with estimates. Implied gross marketing margins came in at Rs6/ltr (PLe: Rs4.5/ltr). Margins fell 36% QoQ due to rise in benchmark petrol, diesel prices and inability to pass on increase in fuel costs. Going ahead, we estimate margins of Rs 5.6/4.1/4.1ltr for FY24/25/26E factoring in upcoming elections.

§ Concall Highlights: 1) BPCL was able to deliver a GRM of US$28.2/bbl at Bina refinery, due to better diesel product slate and use of Russian Urals. 2)The product slate for diesel at Bina/ Kochi/Mumbai is 57%/45%/45%. 3) Capex plan over a period of 5 years stands at Rs 1,500bn which comprises of Rs 490bn- petchem/refinery, Rs 260bn- E&P at Mozambique/Brazil, Rs 250bn-marketing infrastructure, Rs 260bn-CGD, Rs 40bn- renewable energy and Rs 100bn-pipeline. 4) Capex incurred in H1FY24 stands at Rs 50bn, while FY24 guidance stands at Rs 100bn 5) Opex cost stands at Rs1.8-2.1/bbl. 6) The company plans to set up 1,000 new ROs in FY24 and added 300 ROs in H1FY24. 7) Commissioned Bokaro marketing depot at a capex of Rs 2.5 bn; wants to commission 3 new depots in North East.

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