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Bharat Petroleum (BPCL.BO; Rs622.70; 2L)
Takeaways from Mumbai – BPCL presented at our India Investor Conference in
Mumbai. Here are some key takeaways.
Under-recoveries remain high; subsidy sharing for FY12 not firmed up –
With crude prices remaining above US$110/bbl, BPCL is still incurring underrecoveries
of cRs13/ltr on diesel, cRs380/cylinder on LPG, and cRs26/ltr on
kerosene (making some margins on petrol). While losses remain high, the
company expects the government to compensate it adequately for the losses,
similar to FY11. Going forward, the company is hopeful that measures such as:
1) restricting the supply of subsidized LPG cylinders per family, and 2) giving
direct cash subsidy to BPL families for their kerosene consumption, should help
keep under-recoveries in check. Nearer-term, we believe that the trend of crude
prices and news flow on subsidy sharing and price hikes would continue to
determine sentiment on the stock. Meanwhile, the EGoM meeting scheduled for
June 9 to take these issues up has been postponed.
Increasing focus on E&P; eyeing the gas value chain – BPCL, through its
wholly owned E&P subsidiary BPRL, expects to incur additional capex of
cRs100bn over the next 5 years on its E&P activities (cRs20bn to date). The
company has already made discoveries in Brazil, Mozambique, and Indonesia,
and expects reserve certification in the first two to be completed in the next 12-18
months, with production likely by 2016-17. A total of 16 expl. wells should be
drilled this year. BPCL may bring in gas from Mozambique to India as LNG
eventually, given proximity to India and robust gas demand in the country.
Domestically, it also intends to expand the gas mktg business to leverage on
strong prospects for the gas value chain in India. BPCL expects its focus on
upstream and gas businesses to partially diversify the risks associated with its
downstream businesses. It intends to invest nearly cRs400-500bn in the next 5
years over various expansion projects and new businesses (refineries, E&P,
petchem).
Expect GRMs to remain robust – BPCL expects the strength in GRMs to
sustain driven by diesel and gasoline cracks. Also, for the Bina refinery
(complexity of 9.1) which is expected to commission soon, the company expects
margins cUS$5-7/bbl higher than the Singapore benchmark (light/mid-distillates
~80% + tax exemptions).
Bina refinery ramping up; will make BPCL self-sufficient – The Bina refinery
(49% stake), is being commissioned in a phase-wise manner and should
commence regular production in the next 1-2 months. Crude from its SPM in
Jamnagar has already been despatched to Bina. Including the crude pipeline
from Jamnagar to Bina, the total capex on the project has been cRs120bn. Also,
BPCL has completed the upgradation of the Kochi refinery, which has led to an
increase in its refining capacity from 7.5 to 9.5 MMTPA, which it expects to
achieve in FY12. All these put together will make BPCL completely self-sufficient
on the product marketing side.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Petroleum (BPCL.BO; Rs622.70; 2L)
Takeaways from Mumbai – BPCL presented at our India Investor Conference in
Mumbai. Here are some key takeaways.
Under-recoveries remain high; subsidy sharing for FY12 not firmed up –
With crude prices remaining above US$110/bbl, BPCL is still incurring underrecoveries
of cRs13/ltr on diesel, cRs380/cylinder on LPG, and cRs26/ltr on
kerosene (making some margins on petrol). While losses remain high, the
company expects the government to compensate it adequately for the losses,
similar to FY11. Going forward, the company is hopeful that measures such as:
1) restricting the supply of subsidized LPG cylinders per family, and 2) giving
direct cash subsidy to BPL families for their kerosene consumption, should help
keep under-recoveries in check. Nearer-term, we believe that the trend of crude
prices and news flow on subsidy sharing and price hikes would continue to
determine sentiment on the stock. Meanwhile, the EGoM meeting scheduled for
June 9 to take these issues up has been postponed.
Increasing focus on E&P; eyeing the gas value chain – BPCL, through its
wholly owned E&P subsidiary BPRL, expects to incur additional capex of
cRs100bn over the next 5 years on its E&P activities (cRs20bn to date). The
company has already made discoveries in Brazil, Mozambique, and Indonesia,
and expects reserve certification in the first two to be completed in the next 12-18
months, with production likely by 2016-17. A total of 16 expl. wells should be
drilled this year. BPCL may bring in gas from Mozambique to India as LNG
eventually, given proximity to India and robust gas demand in the country.
Domestically, it also intends to expand the gas mktg business to leverage on
strong prospects for the gas value chain in India. BPCL expects its focus on
upstream and gas businesses to partially diversify the risks associated with its
downstream businesses. It intends to invest nearly cRs400-500bn in the next 5
years over various expansion projects and new businesses (refineries, E&P,
petchem).
Expect GRMs to remain robust – BPCL expects the strength in GRMs to
sustain driven by diesel and gasoline cracks. Also, for the Bina refinery
(complexity of 9.1) which is expected to commission soon, the company expects
margins cUS$5-7/bbl higher than the Singapore benchmark (light/mid-distillates
~80% + tax exemptions).
Bina refinery ramping up; will make BPCL self-sufficient – The Bina refinery
(49% stake), is being commissioned in a phase-wise manner and should
commence regular production in the next 1-2 months. Crude from its SPM in
Jamnagar has already been despatched to Bina. Including the crude pipeline
from Jamnagar to Bina, the total capex on the project has been cRs120bn. Also,
BPCL has completed the upgradation of the Kochi refinery, which has led to an
increase in its refining capacity from 7.5 to 9.5 MMTPA, which it expects to
achieve in FY12. All these put together will make BPCL completely self-sufficient
on the product marketing side.
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