BPCL's Q2FY19 results (Neutral) - A weak quarter
Q2FY19 highlights
- BPCL reported PAT of Rs12.2bn (-48% yoy, IDFCe Rs16.8bn). EBITDA of Rs24.2bn was down 31% yoy and below IDFCe Rs29bn despite beat on marketing margins
- Refining thruput of 7.6mt was up 8% yoy, marginally below estimates of 7.7mt. GRMs of $5.6/bbl dipped 30% yoy and were below IDFCe $5.8/bbl. GRMs include inventory gains of $2.3/bbl vs $1.1/bb lest so core margins of only $3.3/bbl disappointed vs IDFCe $4.7/bbl
- Marketing volumes of 10.6mt, up 2.1% yoy vs IDFCe 10.99mt – Blended marketing margins of Rs4915/t was however up 11% yoy, ahead of estimates of 4170/t, driven by sharply higher other product margins. Also, marketing segment had inventory gain of Rs5.4bn vs IDFCe Rs3.8bn. Other opex of Rs48.3bn rose 47% yoy, much above IDFCe Rs38bn.
- Depreciation costs of Rs7.5bn (+18%) and interest costs of Rs3.3bn (+40%) were broadly in line
- Gross debt has risen to Rs240bn from Rs197bn at end of Q1, driven by higher working capital requirements
Key positives: Growth in marketing margins.
Key negatives: Kochi margin profile remains below estimates.
Impact on financials: FY19/20E EPS estimates unchanged, with lower refining/ marketing volumes offset by stronger blended margin estimates. TP revised 10% down to Rs325/sh to factor lower EV/E multiples across segments.
Valuations & View – remain cautious
Despite the weak Q2, H1FY19 EPS has grown 13% yoy, helped mainly by inventory gains. We see some more headwinds on the horizon, with a planned shutdown at Kochi and lower benchmark GRMs in Q3 to hamper refining earnings, while the Rs1/ltr hit taken by the OMCs from the beginning of Oct 2018 to hit marketing earnings as well. Volume growth is also starting to show the impact of the high product prices, with BPCL growth relative to industry growth also the lowest in 6 qtrs in Q2. Valuations of 6x FY20E EPS/ 1.1x Book value (CMP net of listed investment value) remain unchallenging, but near term headwinds create too much uncertainty on prospects for the stocks. Reiterate Neutral​
Bharat Petroleum refines crude oil and markets petroleum products in India. Co. offers fuels and services, as well as lubricants, including automotive engine oils, gear oils, transmission oils, specialty oils, and greases; and liquid and gaseous fuels, illuminating oils, and other products from crude petroleum or bituminous minerals. Co. is engaged in the retailing of petrol, diesel, and kerosene. Co. also imports and exports fuel oil, naphtha, and base oil. Co. serves household and automobile sectors; public and private sectors; and various government establishments, such as defense, railways, state trading corporations, state electricity boards.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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