Bharat Petroleum(Photo: Reuters)
Nomura on BPCL: Nomura, a Japan-based brokerage firm, maintains a positive outlook on Bharat Petroleum Corporate Limited (BPCL), reiterating its ‘Buy’ rating.
“We maintain our FY25F-26F estimates and reiterate Buy with a target price (TP) of Rs 368, underpinned by a favourable refining and marketing outlook and attractive valuations,” said Hemang Khanna, research analyst, Nomura.
Analysts said BPCL reported a robust performance in the June quarter (Q1FY25) despite a challenging environment. They foresee a favourable outlook for refining operations throughout the remainder of the year, anticipating increased refining demand. They also believe that the most challenging period for FY25 may have passed already.
According to reports, Citi also reiterated its ‘Buy’ rating on the stock with a target price set at Rs 380 per share. Meanwhile, Morgan Stanley affirmed its ‘Overweight’ stance with a target price of Rs 366 per share. Jeffries also upheld its ‘Buy’ recommendation, adjusting the target price upward to Rs 385 per share from Rs 365 per share.
Earnings highlights
BPCL reported a strong performance in the first quarter of FY25, with an earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 56.5 billion, surpassing estimates by 5 per cent, Nomura said in a note. However, the figure marked a major 39 per cent sequential (Q-o-Q) decline due to higher-than-expected refining margins, which were partially offset by lower marketing margins. The results, analysts noted, were impacted by LPG under-recoveries amounting to Rs 20.2 billion.
The net income for the quarter stood at Rs 30 billion (earnings per share: Rs 7.1), reflecting a 29 per cent decrease from the previous quarter but surpassing estimates by 16 per cent, primarily driven by lower-than-anticipated interest costs.
Meanwhile, interest expenses amounted to Rs 4.4 billion, declining 15 per cent sequentially and 35 per cent year-on-year. Depreciation, depletion, and amortisation (DD&A) expenses were recorded at Rs 16.8 billion, showing a marginal 2 per cent decrease compared to the previous quarter.
Reported refining margins were $7.9 per barrel (excluding SAED impact), exceeding expectations of $6.3 per barrel but declining sharply by $4.6 per barrel quarter-on-quarter. BPCL’s realised refining margins maintained a premium of $4.4 per barrel over Reuters Singapore refining margins.
The normalised marketing margin of Rs 5,409 per tonne was below forecasts, declining 27 per cent from the previous quarter. The decline, Nomura said, was attributed to lower blended auto-fuel marketing margins (Rs 3.9 per litre compared to Rs 4.8 per litre in Q4FY24) and LPG under-recoveries. Reported marketing margins stood higher at Rs 5,712 per ton, benefiting from Rs 4.1 billion in marketing inventory gains.
During the quarter, BPCL also processed 10.1 million tonnes of crude oil, a 2 per cent decrease from the previous quarter, slightly below expectations.
However, domestic sales volumes remained stable at 13.2 million tonnes quarter-on-quarter, while export sales volumes increased 17 per cent to 0.3 million tons from a lower base.
Conference call highlights, Outlook
Management highlighted that BPCL is aiming to expand its Bina refinery capacity from 7.8 million tonnes to 12 million tonnes by FY29, with a total investment of Rs 490 billion. The company plans to allocate Rs 20 billion towards this project in FY25, anticipating a considerable increase in capex from FY28 onwards.
In FY24, management said, BPCL clocked an annual marketing sales of 52.2 million tonnes, with approximately 5.5 million tonnes sourced from other refiners to meet demand. It further highlighted plans to explore new refinery capacity on the east coast to bridge future supply gaps.
That apart, Russian crude accounted for 39 per cent of BPCL’s total crude throughput, remaining stable quarter-on-quarter. Discounts on Russian crude, they said, narrowed year-on-year to $4-5 per barrel but remained consistent sequentially.
BPCL has also commenced city gas distribution (CGD) operations in 25 out of 26 geographical areas (GAs) planned. The company has allocated Rs 250 billion for CGD infrastructure, with Rs 58 billion already invested. A capex of Rs 28 billion is projected for FY25, with major sales volume growth anticipated from FY26-FY27 onwards.
On the debts front, standalone gross debt, excluding lease liabilities, decreased by Rs 36 billion quarter-on-quarter, amounting to Rs 152 billion.
On the bourses, BPCL stock was trading marginally lower at Rs 303.70 per share, at 9:26 AM. In comparison, BSE Sensex was trading 0.41 per cent lower at 80,273.66 levels.
First Published: Jul 22 2024 | 9:27 AM IST
