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Bharat Petroleum -------------------------------------------------------- Maintain UNDERPERFORM
Profitability maintained on subsidy support, policy uncertainty keeps full-year earnings at risk
● BPCL’s 3Q FY11 EPS of Rs5.2 was down 51%/91% YoY/QoQ.
Headline refining margin at US$4.6/bbl was up from US$2.8/bbl.
BPCL’s 9M EPS is now Rs16.9, down 27% YoY.
● The finance ministry has reportedly promised to pay Rs80 bn to
downstream companies for losses incurred in 3Q FY11 (actual cash
payment will happen later). BPCL has booked Rs18 bn as its share
and has received Rs11.7 bn as discount from upstream companies.
● Hopes of policy change before April seem dashed. The
government is likely to revert to fixing subsidy numbers on an ad
hoc basis at year end. It’s difficult to guess what the government
will eventually pay, but BPCL looks on track to earn less than our
normalised FY11 estimates.
● We note 3Q numbers reflect strong underlying profitability. If
BPCL had no net losses (the govt paid 67% and upstream 33% of
total losses), EPS run rate would be about Rs75 for full year.
● In the near term, any fall in global crude prices may lead to
relative strength in BPCL. However, uncertainties about near-term
earnings could cap upside. We maintain an UNDERPERFORM
BPCL reports profit for 3Q FY11
BPCL reported EPS of Rs5.1 for the December quarter, taking 9M
cumulative EPS to Rs16.9, down 27% YoY. BPCL incurred one-off tax
expenses of Rs1 bn in 3Q (for previous years). Adjusting for this,
BPCL’s EPS for the quarter would have been Rs7.6. The finance
ministry has reportedly promised to pay Rs80 bn to OMCs for losses
incurred in 3Q FY11, which is about 50% of total 3Q losses. BPCL
has booked Rs18 bn as its share of subsidy for the Dec quarter,
taking total support from the government to Rs47.6 bn in 9M FY11. In
addition, it has received Rs11.7 bn as discount from upstream
companies for 3Q losses. With the promised subsidy support from the
government, BPCL has managed to remain in the black in 9M, but is
tracking behind our normalised estimates of Rs68.2 EPS for FY11. In
the backdrop of high crude prices, we do not see policy changes
happening in 4Q, leaving full-year earnings uncertain and dependent
on the likely ad hoc subsidy numbers decided by the government at
year end.
We note that the underlying trend in 3Q numbers reflects strong
profitability on the back of strong refining margins. BPCL reported 3Q
GRM of US$4.6/bbl (9M GRM at US$3.6/bbl), up 64% QoQ. If BPCL
had no net losses (the govt paid 67% and upstream 33% of total
losses), EPS run rate would be about Rs75 for full year.
BPCL refining throughput fell 10% QoQ to 5.03MMT in the Dec
quarter due to a partial shutdown of the Mumbai refinery in November.
Surprisingly, BPCL has reported an inventory loss of Rs8.4 bn in 3Q.
Forex loss of Rs181 mn was booked as part of other expenses.
Uncertainty over subsidy mechanism could continue
In June 2010, the government announced petrol price deregulation
and in principle agreed to deregulate diesel prices as well. OMCs
have since revised petrol prices periodically (though retail prices are
still tracking below global prices by about Rs1-2/lt) but losses on
account of diesel have risen significantly. Given these mounting
losses, we believe the government is likely to revert to its ad hoc
subsidy funding at year end. This policy uncertainty puts near-term
earnings at risk.
In the near term, any fall in global crude prices may lead to relative
strength in BPCL. However, uncertainties about near-term earnings
could cap upside. We maintain an UNDERPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Petroleum -------------------------------------------------------- Maintain UNDERPERFORM
Profitability maintained on subsidy support, policy uncertainty keeps full-year earnings at risk
● BPCL’s 3Q FY11 EPS of Rs5.2 was down 51%/91% YoY/QoQ.
Headline refining margin at US$4.6/bbl was up from US$2.8/bbl.
BPCL’s 9M EPS is now Rs16.9, down 27% YoY.
● The finance ministry has reportedly promised to pay Rs80 bn to
downstream companies for losses incurred in 3Q FY11 (actual cash
payment will happen later). BPCL has booked Rs18 bn as its share
and has received Rs11.7 bn as discount from upstream companies.
● Hopes of policy change before April seem dashed. The
government is likely to revert to fixing subsidy numbers on an ad
hoc basis at year end. It’s difficult to guess what the government
will eventually pay, but BPCL looks on track to earn less than our
normalised FY11 estimates.
● We note 3Q numbers reflect strong underlying profitability. If
BPCL had no net losses (the govt paid 67% and upstream 33% of
total losses), EPS run rate would be about Rs75 for full year.
● In the near term, any fall in global crude prices may lead to
relative strength in BPCL. However, uncertainties about near-term
earnings could cap upside. We maintain an UNDERPERFORM
BPCL reports profit for 3Q FY11
BPCL reported EPS of Rs5.1 for the December quarter, taking 9M
cumulative EPS to Rs16.9, down 27% YoY. BPCL incurred one-off tax
expenses of Rs1 bn in 3Q (for previous years). Adjusting for this,
BPCL’s EPS for the quarter would have been Rs7.6. The finance
ministry has reportedly promised to pay Rs80 bn to OMCs for losses
incurred in 3Q FY11, which is about 50% of total 3Q losses. BPCL
has booked Rs18 bn as its share of subsidy for the Dec quarter,
taking total support from the government to Rs47.6 bn in 9M FY11. In
addition, it has received Rs11.7 bn as discount from upstream
companies for 3Q losses. With the promised subsidy support from the
government, BPCL has managed to remain in the black in 9M, but is
tracking behind our normalised estimates of Rs68.2 EPS for FY11. In
the backdrop of high crude prices, we do not see policy changes
happening in 4Q, leaving full-year earnings uncertain and dependent
on the likely ad hoc subsidy numbers decided by the government at
year end.
We note that the underlying trend in 3Q numbers reflects strong
profitability on the back of strong refining margins. BPCL reported 3Q
GRM of US$4.6/bbl (9M GRM at US$3.6/bbl), up 64% QoQ. If BPCL
had no net losses (the govt paid 67% and upstream 33% of total
losses), EPS run rate would be about Rs75 for full year.
BPCL refining throughput fell 10% QoQ to 5.03MMT in the Dec
quarter due to a partial shutdown of the Mumbai refinery in November.
Surprisingly, BPCL has reported an inventory loss of Rs8.4 bn in 3Q.
Forex loss of Rs181 mn was booked as part of other expenses.
Uncertainty over subsidy mechanism could continue
In June 2010, the government announced petrol price deregulation
and in principle agreed to deregulate diesel prices as well. OMCs
have since revised petrol prices periodically (though retail prices are
still tracking below global prices by about Rs1-2/lt) but losses on
account of diesel have risen significantly. Given these mounting
losses, we believe the government is likely to revert to its ad hoc
subsidy funding at year end. This policy uncertainty puts near-term
earnings at risk.
In the near term, any fall in global crude prices may lead to relative
strength in BPCL. However, uncertainties about near-term earnings
could cap upside. We maintain an UNDERPERFORM.
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