Retail prices for gasoline and diesel have risen by Rs 3-4 / t since the elections ended. At the current price of crude oil, our calculations suggest that further retail price increases of Rs 1 to 5 / liter are needed for diesel and gasoline to restore normal margins.
BPCL reported core Ebitda online, with inventory gains driving JEFe strong pace. Marketing volume growth was faster than industry growth. Marketing profitability is likely to be restored as retail price increases continue. Loans fell sharply on proceeds from the sale of Numaligarh shares and the sale of treasury shares. The Rs 58 / share dividend and low capex were a welcome surprise. We cut Ebitda FY22 / 23e 8/5%; Privatization is key to keep improving.
Results well above expectations: Ebitda reported was 92% ahead driven by inventory gains. Informed PAT was significantly ahead of JEFe with the help of (i) exceptional items: Rs 94 billion gain on sale of stake in Numaligarh refinery, offset by Rs 20 billion impairment in upstream business and related expenses with ESOP of 4 billion rupees; and (ii) deferred tax amortization of CU17 billion
Basic Refinement Ahead: $ 2.5 Core GRM was ahead of JEFe ($ 1.8). The inventory gain of $ 4.2 was much higher than that of BOSS ($ 2). Refinery performance declined 17% year-over-year in fiscal year 21, but held steady in the fourth quarter of fiscal year 21.
Marketing aided by inventory earnings: Marketing Ebitda was aided by inventory earnings of Rs 18.3 billion. Marketing volume increased + 4.1% year-on-year compared to + 2.5% for the industry in the fourth quarter of fiscal 21. Gasoline and diesel market shares were -10bp and + 30bp year-on-year.
Mixed SGP GRM Outlook: Trafigura, in its recent Jef U interaction, indicated that it expects gasoline differentials to strengthen further due to above-normal demand during the June-July US driving season. Naphtha should also remain strong in subsequent demand. But the outlook for diesel is mixed with continued restrictions in India and weak global demand for aviation fuel.
Retail price revisions have a long way to go: retail gasoline and diesel prices have risen by Rs 3-4 / t since the elections ended. At the current price of crude oil, our calculations suggest that further retail price increases of Rs 1 to 5 / liter are needed for diesel and gasoline to restore normal margins.
Borrowing fell sharply year-on-year: Borrowing fell 155 billion rupees year-on-year in FY21 due to (i) a reduction of 57 billion rupees in government accounts receivable; (ii) Net inflow of Rs 80,000 crore from sale of stake in Numaligarh refinery; and (iii) 55 billion rupees from the sale of own shares. The loans will increase to pay dividends (Rs 121 billion) and the purchase of stake in the Bina refinery (Rs 24 billion) in fiscal year 22e. The cash and equivalents of Rs 80 billion and a lower intensity of capex in the run-up to privatization should keep loans under control.
Numaligarh treasury shares and earnings paid as dividend; Privatization is key – we have cut marketing volumes by 9% / 8% for FY 22 / 23e to account for Covid-related restrictions. We have cut Ebitda from FY22 / 23e by 8% / 5%, but EPS increases as the company switches to a lower tax regime. Announced a dividend of Rs 58 per share. The lack of price freedom during the elections clouds the prospects for the privatization of BPCL, in our opinion. We prefer HPCL over BPCL at a favorable valuation, but hold Buy in BPCL with a slightly higher PT of Rs 520 (down from Rs 500) helped by a refinance to FY23e.
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