Bharat Petroleum Corporation (BPCL’s) Q3 FY21 adjusted operating profit stood at Rs 4306 cr (up 67.9% yoy; down 4% qoq), which was 22% above consensus estimate of Rs 3541 cr. Results beat expectations on largely all fronts with better than expected derived net marketing margin at Rs 3597/tonne (up 2.2x yoy; up 0.9% qoq), reported GRM at $2.5/ bbl (vs estimate of $2-2.2/bbl) and refining throughput at 7.2 mmt (refinery utilization rate of 105%). Operating profit includes inventory gain of Rs711 crore (vs Rs 539 cr in Q3 FY20) and forex gains of Rs 96 cr (vs a forex loss of Rs 96 cr in Q3 FY20).
BPCL’s Marketing sales volume stood at 11.4mmt (up 23.1% qoq) was slightly below estimates but more importantly BPCL gained market share of 0.62 percentage points in petrol and 1.05 percentage points in diesel on a sequential basis. Adjusted PAT of Rs 3058 cr (up 133.6% yoy, up 18.5% qoq) was also significantly above consensus estimate of Rs 2038 cr on account of beat in operating profit, higher other income (up 2.9x yoy) and lower interest cost (down 51% yoy) partially offset by higher effective income tax rate of 33% (vs assumption of 25%).
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Sharekhan believes that inventory gains for BPCL would moderate in Q4 FY21 as its crude inventory is valued at $53/bbl (vs spot oil price of $58/bbl) while marketing margin are expected to weaken on qoq basis given inadequate revision in retail auto fuel price during January-February 2021 so far. Notwithstanding the likely weak Q4 FY21 earnings outlook, Sharekhan expects overall earnings to remain strong over FY2022-FY2023 led by a cyclical recovery in the refining margins and a sustained improvement in marketing margin (as Sharekhan expects the same to get normalised with gradual price hikes).
Overall, Sharekhan expects EBITDA/PAT CAGR of 23%/22% over FY2020-FY2023E along with improvement in RoE to 17-18% (versus 10.8% in FY2020). BPCL management expects divestment of Numaligarh Refinery to get completed by March 2021, which could fasten the process of BPCL privatisation (government aims to complete BPCL divestment in FY2022) and it could lead to re-rating, thereby creating long term value for investors. Hence, Sharekhan maintains a Buy rating on BPCL with a revised price target of Rs 520.
BPCL’s Key positives:
BPCL reported GRM at $2.5/bbl was highest amongst the OMCs (IOCL/HPCL GRM of $2.2/$1.9 per bbl).
Higher than expected refining throughput at 7.2 mmt (highest utilisation rate of 105% among OMCs) and market share gain in petrol/diesel
Decline in debt by 11% qoq to Rs 24674 cr as on Dec 31, 2020
BPCL’s Key negatives:
ATF sales volumes still remained weak at 46% of pre-COVID levels in Q3 FY21
BPCL’s Key Risks:
Prolonged weakness in refining margins and impact on petroleum demand, given COVID-19 and any further delay in government’s efforts for privatisation.
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