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Bharat Petroleum Corp. (BPCL)
F3Q11 Helped by Government support
Quick Comment: BPCL reported F3Q11 results
registering EBITDA of Rs7.5bn, up 16% YoY but down
70% on a sequential basis. Reported PAT came in at
Rs1.9bn, although adjusting for tax provisions related to
earlier years, PAT was Rs2.9bn, which was down 23%
YoY and 86% on a sequential basis. We highlight that
the results were affected by a net subsidy burden, which
increased 55% on a YoY basis.
BPCL’s net subsidy burden at Rs5.4bn in F3Q11:
Gross under-recoveries were Rs35.2bn, up 18% YoY
and 43% on a sequential basis. The company received
Rs11.7bn from upstream companies as subsidy support.
The government has approved a budgetary support or
Rs18.1bn for partial compensation of under-recoveries.
This quarter, the government has borne ~51% of the
overall subsidy burden, whereas upstream has shared
33%. The remaining 16% is being borne by downstream
companies.
GRMs in line with expectation; throughput affected
due to shutdown: F3Q11 GRMs of US$4.6/bbl was up
63% QoQ and broadly in line with our expectation of
US$4.5/bbl. However, refining throughput was lower at
5.03MT, down ~10% QoQ manly due to maintenance-
related shutdown of ~3 weeks at Mumbai refinery in
November. We estimate overall EBITDA for the refining
division at ~Rs5.6bn.
Marketing volumes remain robust, however margins
lack luster: BPCL sold 7.4Mt of products registering
solid growth of 12% QoQ and 6% on a YoY basis.
However, marketing margin, after accounting for
upstream and budgetary support, stood at US$0.64/bbl.
What does this mean to our estimates? Based on
F3Q11 results, we are maintaining our estimates.
Currently, we expect the government to compensate
downstream companies for 50% of the overall subsidy
burden for F2011, which is in line with this quarter.
However, we await more clarity from the government on
the subsidy sharing mechanism for downstream sector
before reviewing our model.
Valuation Methodology
Price target Rs918.00
We base our price targets for our R&M covered stocks on
F2011e P/E multiples, which are currently trading at 14x. We
assume a 15% discount (i.e., 11.9x average of F2011e
earnings) largely to factor in the prevailing uncertainty on
regulations in the industry in India. We also factor in the
treasury stock (T Stock) held by the company, its 50%
ownership in the Bina refinery, and value of its equity holding in
Oil India Ltd.
Keys Risks to BPCL
• A rise in crude oil prices and the marketers being forced
not to increase retail prices of petroleum products would
negatively affect earnings and thus the stock price.
• The government might announce a fresh regulatory
package for the industry, again changing the rules of the
game, which may significantly affect marketing earnings –
positively or negatively
Company Description
Bharat Petroleum (BPCL) is one of the three premier refining &
marketing (R&M) companies in India. The company has over
5,000 retail outlets (gas stations) throughout the country and a
domestic market share of about 22%. With its two refining
subsidiaries, BPCL has a refining capacity of over 20 million
tons, accounting for 16% of India’s refining capacity. The
Government of India holds 66.2% in the company.
India Oil & Gas
Industry View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Petroleum Corp. (BPCL)
F3Q11 Helped by Government support
Quick Comment: BPCL reported F3Q11 results
registering EBITDA of Rs7.5bn, up 16% YoY but down
70% on a sequential basis. Reported PAT came in at
Rs1.9bn, although adjusting for tax provisions related to
earlier years, PAT was Rs2.9bn, which was down 23%
YoY and 86% on a sequential basis. We highlight that
the results were affected by a net subsidy burden, which
increased 55% on a YoY basis.
BPCL’s net subsidy burden at Rs5.4bn in F3Q11:
Gross under-recoveries were Rs35.2bn, up 18% YoY
and 43% on a sequential basis. The company received
Rs11.7bn from upstream companies as subsidy support.
The government has approved a budgetary support or
Rs18.1bn for partial compensation of under-recoveries.
This quarter, the government has borne ~51% of the
overall subsidy burden, whereas upstream has shared
33%. The remaining 16% is being borne by downstream
companies.
GRMs in line with expectation; throughput affected
due to shutdown: F3Q11 GRMs of US$4.6/bbl was up
63% QoQ and broadly in line with our expectation of
US$4.5/bbl. However, refining throughput was lower at
5.03MT, down ~10% QoQ manly due to maintenance-
related shutdown of ~3 weeks at Mumbai refinery in
November. We estimate overall EBITDA for the refining
division at ~Rs5.6bn.
Marketing volumes remain robust, however margins
lack luster: BPCL sold 7.4Mt of products registering
solid growth of 12% QoQ and 6% on a YoY basis.
However, marketing margin, after accounting for
upstream and budgetary support, stood at US$0.64/bbl.
What does this mean to our estimates? Based on
F3Q11 results, we are maintaining our estimates.
Currently, we expect the government to compensate
downstream companies for 50% of the overall subsidy
burden for F2011, which is in line with this quarter.
However, we await more clarity from the government on
the subsidy sharing mechanism for downstream sector
before reviewing our model.
Valuation Methodology
Price target Rs918.00
We base our price targets for our R&M covered stocks on
F2011e P/E multiples, which are currently trading at 14x. We
assume a 15% discount (i.e., 11.9x average of F2011e
earnings) largely to factor in the prevailing uncertainty on
regulations in the industry in India. We also factor in the
treasury stock (T Stock) held by the company, its 50%
ownership in the Bina refinery, and value of its equity holding in
Oil India Ltd.
Keys Risks to BPCL
• A rise in crude oil prices and the marketers being forced
not to increase retail prices of petroleum products would
negatively affect earnings and thus the stock price.
• The government might announce a fresh regulatory
package for the industry, again changing the rules of the
game, which may significantly affect marketing earnings –
positively or negatively
Company Description
Bharat Petroleum (BPCL) is one of the three premier refining &
marketing (R&M) companies in India. The company has over
5,000 retail outlets (gas stations) throughout the country and a
domestic market share of about 22%. With its two refining
subsidiaries, BPCL has a refining capacity of over 20 million
tons, accounting for 16% of India’s refining capacity. The
Government of India holds 66.2% in the company.
India Oil & Gas
Industry View: Attractive
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