Deutsche bank:: BPCL Sell 3Q result disappoints on lower government compensation

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BPCL Sell
3Q result disappoints on lower government compensation


BPCL reports Q3FY11 PAT of INR1.9bn, 70% below DB estimates
BPCL reported lower than expected net profit at INR1.9bn (-51% YoY, -91%
QoQ) due to higher net under-recoveries of INR5.2bn (20% above our estimate), lower other income of INR3.1bn (-33% yoy, - 42% qoq) and tax of
INR1bn for previous years. Government compensation for losses on the
sale of subsidized petroleum products was 8% lower than expected at INR18bn implying 51% government subsidy sharing. This was, however,
partly compensated by inventory gains of INR3bn against a loss of INR0.8bn
in Q2FY11 and a gain of INR1bn last year. GRMs for the quarter were US
$4.7/bbl (+108% YoY, +55% QoQ). Fx loss was INR0.2bn against fx profits
of INR3bn in Q2FY11 and INR1.3bn last year. The company has commissioned its new 6mmtpa Bina refinery.

Sustainable earnings for FY11 is INR41/sh
The adjusted net profit for 9MFY11 assuming 57% government compensation, zero inventory and fx losses/ gains and tax at 33% is INR11bn. This
implies an annualised EPS of INR41/sh.
High oil prices and uncertain govt compensation; reiterate Sell
We reiterate our Sell on BPCL with a TP of INR500/sh on expectations of
rising net under-recoveries as oil prices remain high. Moreover, we believe
BPCL is vulnerable to any negative surprise on Government compensation
for FY11 which is already running lower YTD at 45% against our assumptions of 57%