Buy BPCL : FY11E EPS estimated at Rs51; could have been worse „:: BofA Merrill Lynch

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BPCL
   
FY11E EPS estimated at Rs51;
could have been worse
„Cut FY11 EPS by 1%; cut could have been lot steeper
FY11 subsidy sharing has been finalized today. The main surprise was that
upstream companies’ share in FY11 subsidy was raised to 38.7% as against the
expected 33.3%. Rise in upstream share in subsidy to 38.7% meant R&M
companies’ share in subsidy is 8.8%. R&M companies like BPCL have thus
gained from the rise in upstream share in subsidy but their subsidy hit is still
higher than our optimistic assumption. We therefore had to cut BPCL’s FY11E
EPS by 1% to Rs51. However, its FY11E EPS could have been far lower at
Rs36.5 if upstream share in subsidy was 33% and R&M had to bear 14%. A near
term trigger is likely to be fuel price hike to cut FY12E subsidy. Our PO of Rs650
implies 4% potential upside. We retain Neutral on BPCL.
Earlier EPS estimate on very optimistic subsidy assumption
Our FY11 EPS estimate for BPCL was earlier based on optimistic assumption of
subsidy hit of R&M companies of just Rs45bn. Their subsidy hit would have been
as high as Rs111bn if upstream share was 33%. However, with upstream share
up to 38.7% R&M companies’ subsidy will be just Rs69bn, which is still higher
than our assumption. We therefore have cut BPCL’s FY11 EPS by 1%.
FY11 EPS up 13% on reported basis; 22% down on recurring
We now estimate FY11E EPS of BPCL at Rs51. BPCL’s FY11E EPS is 13% YoY
higher than its FY10 reported EPS of Rs45.1. However, it is 22% YoY lower than
its FY10 recurring EPS of Rs65. BPCL’s FY10 reported EPS was lower than
recurring EPS due to hefty provision for mark to market on oil bonds.