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1QFY12 results
BPCL’s 1QFY12 net loss of Rs25.6bn was larger than our estimate. Weak
GRMs due to partial shutdown of upgrader units at Kochi, loss on petrol
sale, forex loss, MTM writedowns on bonds and one-off staff related
charges were key drags. While decline in crude prices will help the macro
for all state owned oil & gas stocks, we continue to prefer the upstream
SOEs; the R&Ms have larger EPS sensitivity to a change in subsidy sharing
formula while large crude price corrections may also predicate inventory
losses. Given its low return ratios, BPCL’s 1.5x PB is unattractive. U-PF.
1QFY12 PAT came lower than our estimate
BPCL’s 1QFY12 net loss of Rs25.6bn was much larger than estimate. Lower
core GRMs (US$3.6 cf. US$8.9/bbl) as partial shutdown of key upgrader units
at Kochi because of upgrades, extended planned and unplanned shutdowns
pulled the refinery’s GRMs to a mere US$0.15/bbl and loss on petrol sales of
Rs6.7bn were key drags on EBITDA. Forex loss, MTM writedown on bonds and
one time staff related charges further added to already large losses.
Fall in crude to lower under-recovery but inventory losses will rise
Driven by rise in concerns around global growth and in turn oil demand, crude
prices have corrected by +10% in Aug-11. While this improves the macro for
all SOEs in India by cutting under-recoveries, refiners like BPCL would also be
impacted by a rise in inventory losses. We continue to prefer upstream
stocks, therefore, over the downstream SOEs as a play on this theme.
Uncertainty on subsidy framework is a headwind
While upstream sharing reverted to one-third in 1QFY12 from 39% in FY11,
lower government support at 34.5% dragged BPCL into losses. We model
government’s share at 55% for FY12 (downstream 11.7%) but note that this
framework will be uncertain till May-12. With a 1ppt change impacting FY12
EPS by 5%, BPCL’s FY12 EPS will be indeterminable for another nine months.
Maintain U-PF; prefer upstream over downstream
While BPCL generated Rs25-30bn in FCF in FY11, as management embarks on
new round of expansion return ratios will remain under pressure even in a
benign subsidy scenario, its 1.5x FY12 PB appears unattractive. Nonetheless,
decline in crude prices, possibility of a cap on subsidised LPG volumes or
newsflow around likelihood of formalisation of a subsidy sharing formula may
benefit all state owned oil & gas stocks. However, we would prefer to play
these through upstream names because of their higher historical stability and
lower earnings sensitivity to a change in the subsidy formula. Maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
BPCL’s 1QFY12 net loss of Rs25.6bn was larger than our estimate. Weak
GRMs due to partial shutdown of upgrader units at Kochi, loss on petrol
sale, forex loss, MTM writedowns on bonds and one-off staff related
charges were key drags. While decline in crude prices will help the macro
for all state owned oil & gas stocks, we continue to prefer the upstream
SOEs; the R&Ms have larger EPS sensitivity to a change in subsidy sharing
formula while large crude price corrections may also predicate inventory
losses. Given its low return ratios, BPCL’s 1.5x PB is unattractive. U-PF.
1QFY12 PAT came lower than our estimate
BPCL’s 1QFY12 net loss of Rs25.6bn was much larger than estimate. Lower
core GRMs (US$3.6 cf. US$8.9/bbl) as partial shutdown of key upgrader units
at Kochi because of upgrades, extended planned and unplanned shutdowns
pulled the refinery’s GRMs to a mere US$0.15/bbl and loss on petrol sales of
Rs6.7bn were key drags on EBITDA. Forex loss, MTM writedown on bonds and
one time staff related charges further added to already large losses.
Fall in crude to lower under-recovery but inventory losses will rise
Driven by rise in concerns around global growth and in turn oil demand, crude
prices have corrected by +10% in Aug-11. While this improves the macro for
all SOEs in India by cutting under-recoveries, refiners like BPCL would also be
impacted by a rise in inventory losses. We continue to prefer upstream
stocks, therefore, over the downstream SOEs as a play on this theme.
Uncertainty on subsidy framework is a headwind
While upstream sharing reverted to one-third in 1QFY12 from 39% in FY11,
lower government support at 34.5% dragged BPCL into losses. We model
government’s share at 55% for FY12 (downstream 11.7%) but note that this
framework will be uncertain till May-12. With a 1ppt change impacting FY12
EPS by 5%, BPCL’s FY12 EPS will be indeterminable for another nine months.
Maintain U-PF; prefer upstream over downstream
While BPCL generated Rs25-30bn in FCF in FY11, as management embarks on
new round of expansion return ratios will remain under pressure even in a
benign subsidy scenario, its 1.5x FY12 PB appears unattractive. Nonetheless,
decline in crude prices, possibility of a cap on subsidised LPG volumes or
newsflow around likelihood of formalisation of a subsidy sharing formula may
benefit all state owned oil & gas stocks. However, we would prefer to play
these through upstream names because of their higher historical stability and
lower earnings sensitivity to a change in the subsidy formula. Maintain U-PF.
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