BPCL- Government compensation for H1 leads to profitability in Q2:: Centrum

Government compensation for H1 leads to
profitability in Q2
Government compensation of Rs300bn for the under-recoveries incurred
during H1FY13 led to profitability of all OMCs including BPCL. The
company bettered its Q2 operational performance with US$6.4/bbl in
GRMs and higher throughput of 5.94mmt. Bina refinery throughput was
lower at 1.0mmt due to operational issues but GRMs remained healthy at
US$7.7/bbl. With the revision in petrol prices during Q2, the company has
stopped incurring any losses on petrol. Although, BPCL reported PAT of
Rs50.3bn in Q2, under-recoveries’ absorption of Rs61.3bn during H1 led
to a loss Rs38.0bn for H1FY13. We like BPCL due to its E&P success and
hence maintain our ‘Buy’ rating on the stock.
Lower market sales yet rupee depreciation leads to higher revenues:
BPCL’s revenues jumped by 34.5% YoY at Rs568.9bn backed by 10.4%
increase in market sales at 7.8mmt and higher product prices due to
rupee depreciation. Throughput also inched up 6.5% YoY and 0.5% QoQ
at 5.9mmt.
Forex and inventory gains further support profitability: BPCL’s
operational performance was better with average GRMs of US$6.4/bbl in
Q2 and US$4.6/bbl in H1. The company had inventory gains of Rs4.4bn
while favourable exchange rate led to Rs11.7bn in forex gains. Upstream
companies offered Rs36.2bn in discounts to BPCL while government
compensation for H1FY13 was at Rs72.4bn which led to BPCL posting PAT
of Rs50.3bn. However, due to absorption of Rs61.3bn in under-recoveries
during H1, the company incurred a loss of Rs38.0bn during H1FY13. The
company holds a debt of Rs256.0bn of which over 80% is foreign currency
debt. BPCL also holds oil bonds of Rs64.8bn.

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E&P story to be unfolded in 2013: Bina refinery’s operational
performance was better with GRMs at US$7.7/bbl and it is expected to
perform better going ahead. BPCL did not incur any under-recoveries on
petrol during Q2 due to the revision in petrol prices (Q1 under-recoveries
on petrol – Rs6.0bn) and even now the company is not losing money on
the sale of petrol. BPCL has invested over Rs15.0bn during H1 and is
planning to invest over Rs35.0-40.0bn (including E&P) during FY13E. We
like BPCL due to its exposure to E&P which has been successful so far. The
E&P story is likely to unfold further in 2013 when the reserve estimates for
Mozambique block will be available. Hence we like BPCL due to the value
from its E&P and maintain ‘Buy’ with a revised price target of Rs448 (earlier
Rs464).