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Bharat Petroleum Corporation
(BPCL) Neutral
BPCL.BO, BPCL IN
2QFY11: Shored up by government subsidies
• Govt. subsidies underpin 2Q profits: BPCL reported 2Q profits of
Rs21.4bn, turning in a 1H profit of Rs4.2bn, with government subsidy
support of Rs29.5bn being booked this quarter.
• GRMs decline due to upgradations: BPCL GRMs for the quarter came
in at ~$2.8/bbl (vs. $3.57/bbl in 1Q). The Kochi refinery GRMs were
affected this quarter due to the Euro 3/4 upgradations during the quarter
- this impacted the secondary units processing and led to lower GRMs.
GRMs for 1H stood at $3.19/bbl.
• Throughput steady: Refinery throughput for the quarter was 5.62 mmt
(vs. 5.57 mmt), as an increase in the Mumbai refinery output offset the
reduction from Kochi.
• Govt. subsidy payout supports earnings….: The govt. provided
Rs29.5bn in subsidies to BPCL, adding to the Rs8.2bn from the
upstream companies, providing a cushion to earnings, and allowing a
profit for the first half of the fiscal.
• ….but policy risks remain: While petrol deregulation continues to
work, high inflation levels have necessitated a delay in implementation
of diesel deregulation. With crude rising beyond $85/bbl, potentially
higher than expected marketing losses and uncertainty on the final
quantum of government support cause a continued lack of visibility of
R&M earnings, in our view.
• Price target, valuations and key risks: We maintain our Neutral stance,
and Mar-11 price target of Rs645, based on 6x FY12E EV/EBITDA, at a
discount to its regional peers due to continuing policy uncertainty. Key
upside risks to our call emanate from policy initiatives on subsidy
sharing and diesel deregulation. Downside risk would be sustained high
crude prices.
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