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MOSL: BPCL (Buy)-Core GRM boosted by Kochi/Mumbai refineries-impressive EBITDA sans inventory loss

BPCL: Core GRM boosted by Kochi/Mumbai refineries; impressive EBITDA sans inventory loss

(BPCL IN, Mkt Cap USD10.3b, CMP INR337, TP INR398, 18% Upside, Buy)

 

• BPCL reported EBITDA of INR783m in 3QFY19. However, excluding inventory loss of INR33.3b, core EBITDA stood at INR34.1b (2x YoY, +78% QoQ), exceeding our estimate of INR29.7b, primarily due to higher-than-expected core GRM. Forex gain stood at INR6.6b, as against a gain of INR840m in 3QFY18 and a loss of INR9.3b in 2QFY19. Effective tax rate in 3QFY19 was lower at 16% v/s Apr-Dec 18 average of 28%. PAT declined 77% YoY (-59% QoQ) to INR4.9b.
• Core GRM stood at USD6.0/bbl (our estimate: USD3.0; 3QFY18: USD4.9; 2QFY19: USD3.3). Core GRM was high at both Kochi (USD6.03) and Mumbai (USD6.01) refineries. Refinery throughput was at 7.5mmt (+3% YoY, -2% QoQ).
• Domestic sales volume was flat YoY (+6% QoQ) at 10.7mmt in 3QFY19. Implied marketing margin inclusive of inventory gain stood at INR2.9/liter (-24% YoY, -42% QoQ). Net of inventory gain, the marketing margin stood at INR4.5/liter.

Valuation and view

• BPCL is expected to stabilize its Kochi expansion over the next few quarters, which should expand the Kochi refinery GRM by ~USD2/bbl.
• OMCs have seen a sharp correction in their stock prices due to high oil prices, INR depreciation and the government’s directive to absorb INR1/lit on pricing of auto fuels.
• For 9MFY19, standalone adj. EBIDTA was at INR72.3b (+1% YoY), while adj. PAT moderated by 24% to INR40b. We estimate FY19 standalone EPS of INR34.8.