BPCL reported in-line core Ebitda, with inventory gains driving a large beat to JEFe. Marketing volume growth was faster than industry growth. Marketing profitability is likely to be restored as retail price hikes continue. Borrowings dropped sharply on proceeds from Numaligarh stake sale and treasury stock sale. Dividend of Rs 58/share and low capex pleasantly surprised. We cut FY22/23e Ebitda 8/5%; privatisation is key to further upside.
Results well ahead of expectations: Reported Ebitda was 92% ahead driven by inventory gains. Reported PAT was significantly ahead of JEFe aided by (i) exceptional items – Rs 94-bn gain on sale of stake in Numaligarh refinery offset by Rs 20-bn impairment in upstream business and Rs 4-bn ESOP related expense; and (ii) deferred tax write-back of Rs 17 bn.
Core refining ahead: Core GRM of $2.5 was ahead of JEFe ($1.8). Inventory gain of $4.2 was much higher than JEFe ($2). Refinery throughput declined 17% y-o-y in FY21 but was flat y-o-y in Q4FY21.
Marketing aided by inventory gains: Marketing Ebitda was aided by inventory gains of Rs 18.3 bn. Marketing volume was up +4.1% y-o-y against +2.5% for industry in Q4FY21. Gasoline and diesel market shares were -10bps and +30bps y-o-y.
SGP GRM outlook mixed: Trafigura, in its recent Jef U interaction, indicated it expects gasoline spreads to strengthen further on higher than normal demand during the US driving season in June-July. Naphtha should also remain strong on downstream demand. But the outlook on diesel is mixed with continued restrictions in India and weakness in global aviation fuel demand.
Retail price revisions have some way to go: Retail prices of gasoline and diesel have increased by Rs 3-4/lt since the elections ended. At the current crude price, our calculations suggest further retail price hikes of Rs 1-5/lt in diesel and gasoline are needed to restore normal margins.
Borrowings sharply down y-o-y: Borrowings fell Rs 155 bn y-o-y in FY21 on the back of (i) Rs 57-bn reduction in government receivables; (ii) Rs 80-bn net inflow from sale of stake in Numaligarh refinery; and (iii) Rs 55 bn from sale of treasury stock. Borrowings will increase to pay dividend (Rs 121 bn) and purchase of Bina refinery stake (Rs 24 bn) in FY22e. Cash & equivalents at Rs 80 bn and lower capex intensity in the run-up to privatisation should keep borrowings in check.
Treasury stock and Numaligarh proceeds paid as dividend; privatisation is key: We have cut marketing volumes 9%/ 8% for FY22/23e to factor in the Covid-related restrictions. We have cut FY22/23e Ebitda 8%/5% but EPS rises as the company shifts to a lower tax regime. It announced a dividend of Rs 58/share. Lack of pricing freedom during the election clouds the outlook on BPCL’s privatisation, in our view. We prefer HPCL over BPCL on favourable valuation but maintain Buy on BPCL with a slightly higher PT of Rs 520 (from Rs 500) helped by a roll-over to FY23e.