BPCL: Why JM Financial retains ‘Reduce’ rating amid Rs 4,350 crore asset hit and soaring LPG losses

The brokerage house, JM Financial in its report noted that BPCL’s March quarter performance came in mixed. While some operational numbers were better than broader Street expectations, key refining and marketing earnings still fell short of JM Financial’s internal estimates.

Furthermore, the company reported another massive impairment hit in its exploration business and warned of sharply rising Liquefied Petroleum Gas (LPG) under-recoveries due to elevated crude oil prices.

The brokerage stated, “We maintain ‘Reduce’ due to risk of high under-recoveries in the auto-fuel marketing business on likelihood of elevated crude price in the near to medium term and aggressive capex plans.”

BPCL Q4FY26 performance dashboard

BPCL reported standalone Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of around Rs 10,100 crore for Q4FY26. This was lower than JM Financial’s estimate of Rs 10,800 crore, although still ahead of broader market consensus estimates.

The company’s reported Gross Refining Margin (GRM) stood at around $18 per barrel during the quarter. However, marketing profitability remained weak, and the company also reported a significant impairment charge tied to its overseas exploration assets.

According to the JM Financial report, BPCL’s consolidated gross debt also increased by Rs 6,580 crore quarter-on-quarter to around Rs 43,500 crore in Q4.

The double shock: Impairments and escalating LPG losses

One of the biggest negatives in the quarter came from BPCL’s wholly owned exploration subsidiary Bharat PetroResources (BPRL).

The company reported another impairment charge of Rs 4,350 crore due to delays in production timelines from its Brazil exploration blocks. This sharply reduced the company’s reported Profit After Tax (PAT) during the quarter. 

JM Financial noted, “BPCL took another impairment of Rs 4,350 crore in 4Q.”

Because of this, reported PAT dropped sharply to Rs 3,190 crore, even though adjusted PAT stood higher at around Rs 6,500 crore.

At the same time, losses in the domestic LPG business continued to rise rapidly. According to management commentary cited in the brokerage report, LPG under-recovery jumped significantly over the last two months as crude oil prices surged globally.

The report stated, “LPG under-recovery had jumped to INR 170/cylinder in April 2026 and Rs 670/cylinder in May’26.”

Refining and marketing undercurrents

BPCL’s refining business remained relatively stable, but still missed JM Financial’s expectations slightly.

According to the brokerage report, “Implied EBITDA for the refining segment was lower at Rs 9,800 crore.”

The brokerage explained that reported Gross Refining Margin came in marginally below estimates at $18 per barrel compared to expected levels of $18.4 per barrel.

Marketing performance was weaker. JM Financial highlighted that implied marketing EBITDA stood at only Rs 280 crore, significantly lower than its estimates.

The report stated, “Implied marketing EBITDA was also lower at Rs280 crore versus JMFe of Rs 660 crore.”

Despite weak profitability, BPCL managed to improve market share in both High-Speed Diesel (HSD) and Motor Spirit (MS), commonly known as petrol.

However, rising LPG losses and volatile crude prices continued to offset much of these gains.

The crude geopolitics: Sourcing realities post-Iran conflict

Another important factor weighing on BPCL is the sharp rise in crude procurement costs following tension in West Asia.

During the post-results conference call, management clarified that crude availability itself was not a major concern. Russian crude sourcing continues to remain stable and currently contributes nearly 40-41% of total imports.

However, the landed cost of crude has risen sharply.

According to the brokerage report, “Current crude landed cost is USD 10–12/bbl above Brent.”

Management also said that this premium had surged as high as $20–22 per barrel during the peak of recent geopolitical tensions before moderating slightly.

This higher procurement cost continues to pressure refining economics and fuel marketing margins.

Valuation outlook: Why the stock faces a ceiling

BPCL trading at around 1.1 times FY28 estimated Price-to-Book valuation, JM Financial believes the near-term risk-reward remains limited.

The brokerage has marginally reduced its FY27 and FY28 EBITDA estimates by around 1–2% after incorporating Q4 numbers and current crude trends.

According to the report, elevated crude prices, rising LPG losses, weak marketing profitability and aggressive capital expenditure plans could continue to pressure earnings visibility over the medium term.

The brokerage stated, “BPCL is trading at a reasonable valuation of 1.1x FY28E P/B.”

However, until fuel marketing margins improve and under-recoveries stabilise, analysts believe upside in the stock may remain capped despite stable refining operations.

Disclaimer: This article is based on a third-party brokerage report and is for informational purposes only. It does not constitute a buy, sell, or hold recommendation, or an offer or solicitation to trade in any securities. Investors should note that market equity investments are subject to market risks, and past performance is not indicative of future results. It is highly recommended to consult a SEBI-registered investment advisor before making any financial or investment decisions. This disclaimer has been generated using AI to support user well-being and responsible content consumption.