Bharat Petroleum Corporation’s (BPCL) Q1FY22 recurring EPS is down 29% YoY as hit from YoY plunge in net marketing margin exceeded gains from YoY rise in reported GRM and product inventory gain. Q1 consolidated recurring EPS is down 27% YoY (it is not really comparable as NRL boosted Q1FY21 EPS, but BPCL divested its stake in Mar’21). Auto fuel net marketing margin is on track to be in line with our FY22E estimate of Rs 2.5/l or higher. BPCL’s core GRM remains weak and diesel cracks recovery is key to GRM rising to our FY22E estimate of $3.5/bbl. We have kept FY22E EPS and target price unchanged. BPCL is our top pick among OMCs as we are more confident of gains from privatisation than GRM recovery, on which peers’ fortunes depend more than that of BPCL. Retain ‘buy’.
Q1 EPS hit by plunge in net marketing margin: Standalone Q1FY22 recurring EPS is down 29% YoY, hit by 77% YoY fall in net marketing margin to Rs 1.4/l, and despite 10.6x YoY rise in reported GRM to $4.12/bbl and 8% YoY rise in estimated product inventory gain to Rs 10.8billion. Excluding inventory gain/loss, Q1 standalone EPS is down 77% YoY. Consolidated Q1 recurring EPS is down 27% YoY despite share of profit of associates being up 5.5x YoY to Rs 2.6billion as NRL did not contribute to consolidated EPS in Q1FY22; BPCL divested its stake in NRL in Mar’21.
Marketing margins appear on track to be in line with FY22E estimate or higher: Rs 9-11.8/l hike in domestic diesel and petrol prices in FY22-TD and fall in international prices from 6-Jul’21 peak has meant that net auto fuel marketing margin is at Rs 3.28/l on 12-Aug’21 and Rs 2.89/l in Q2FY22-TD vs Rs 1.43/l in Q1FY22 and Rs 1.90/l in FY22-TD. Net margin is estimated at Rs 3.98/l on 16-Aug’21 based on international prices during 1-11 Aug’21 and at Rs 4.39/l at latest international prices. If domestic and international prices remain at current levels, FY22E net margin would work out to `3.45/l vs our FY22E estimate of Rs 2.5/l.