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BPCL-RR-280512

VIEWS: 26 PAGES: 6

									                                                                                                                             May 28, 2012



  RESULTS
 COMPANY                                                                                                                    Bharat Petroleum Corporation Ltd. (BPCL)
  REVIEW
 REPORT                                                                                                                      Upstream to remain key catalyst…                                                                    BUY
                                                                       Analyst                                              Summary
                                                                Sudeep Anand
                                                              +91-22-4322 1190                                              BPCL’s Q4FY12 result was above-our-estimates due to higher-than-expected forex gain. Adjusting to this,
                                                                                                                            result was in-line with expectation. The company’s crude throughput increased 7.5% YoY to 6.0mmt and
                                 sudeep.anand@idbicapital.com
                                                                                                                            product sales volume increased 7.8% YoY to 9.1mmt, in-line with our estimate. Further, the company’s
                                                                                                                            GRM declined 40% YoY to US$4.2/bbl in Q4FY12. BPCL has received total subsidy share of Rs92/43 bn
Nifty: 4,986; Sensex: 16,417                                                                                                from government/upstream in Q4FY12 against Rs47/34 bn in Q4FY11. Consequently, the company made
                                                                                                                            total over-recovery of Rs36 bn in Q4FY12 against Rs7.4 bn in Q4FY11. Forex gain stood at Rs8.3 bn in
                                                                                                                            Q4FY12 against Rs270 mn in Q4FY11.
CMP                                                                                             Rs717
                                                                                                                            Bina refinery operated ~55% in FY12, while it touched 90-95% in Q1FY13. Also, Bina refinery’s GRM stood
Target Price                                                                                    Rs830                       at US$11/bbl in Q4FY12 and the management guided for sustainable margin of over US$9/bbl at current
Potential Upside/Downside                                                                       +16%                        crack spreads along with in-land benefit of ~US$1.5/bbl. The company also guided for US$2-2.5/bbl of
                                                                                                                            opex for Bina refinery. The company is planning to invest Rs55bn in FY13 including Rs15 bn for upstream
                                                                                                                            (primarily Mozambique and Brazil assets) and Rs700 mn for Kochi refinery capacity expansion (from
Key Stock Data                                                                                                              9.5mtpa to 15.5mtpa by FY16 at total capex of Rs142 bn).
Sector                    Oil and Gas                                                                                       We are revising valuation for its upstream assets upwards to Rs300/share (Rs108 bn) from Rs259/share
Bloomberg / Reuters BPCL IN / BPCL.BO                                                                                       earlier on the back of upward revision in recoverable gas reserves in Mozamibque from 17-30tcf to 24-
Shares o/s (mn)                  361.5                                                                                      50tcf. Consequently, our target price is revised upwards to Rs830 from earlier Rs771. Maintain BUY.
Market cap. (Rs mn)            259,196
Market cap. (US$ mn)             4,697
                                                                                                                            Result Highlights
3-m daily average vol.          58,958                                                                                       Robust volume and higher over-recovery led topline growth
                                                                                                                                  BPCL’s revenues increased 43% YoY to Rs647 bn due to 8% YoY increase in crude throughput and 6%
Price Performance                                                                                                                 YoY increase in product sales, which came in-line with our expectations. The company’s crude throughput
                                                                                                                                  increased 7.5% YoY to 6.0mmt and product sales volume increased 7.8% YoY to 9.1mmt, in-line with our
52-week high/low                                                                Rs768/459                                         estimate. BPCL has received total subsidy share of Rs92/43 bn from government/upstream in Q4FY12
                  -1m                                                         -3m -12m                                            against Rs47/34 bn in Q4FY11. Consequently, the company made total over-recovery of Rs36 bn in
Absolute (%)        7                                                           10     14                                         Q4FY12 against Rs7.4 bn in Q4FY11.
Rel to Sensex (%) 12                                                            17     24                                    Higher forex gain expanded EBITDA margin
                                                                                                                                  EBITDA expanded 476bps YoY to 8.5% in Q4FY12 on the back strong over-recoveries and higher forex
Shareholding Pattern (%)                                                                                                          gain. Forex gain came at Rs8.3 bn in Q4FY12 against Rs270 mn in quarter year ago. However, lower
                                                                                                                                  GRM partially offset the gain which declined 40% YoY at US$4.2/bbl in Q4FY12. Further, the company’s
Promoters                                                                                           54.9                          interest cost decreased 4.5% QoQ to Rs4.9 bn as gross debt reduced to Rs230 bn at the end of Q4FY12
FIIs/NRIs/OCBs/GDR                                                                                   7.9                          from Rs260 bn at the end of Q3FY12. Net profit increased to Rs40 bn from Rs9.4 bn in Q4FY11.
MFs/Banks/FIs                                                                                       18.8                     Bina refinery operating at over 90% utilization; GRM stood at US$11/bbl in Q4FY12
Govt.                                                                                                0.9
                                                                                                                                  BPCL’s Bina refinery has operated at 67% of utilization and processed 1.0mmt of crude oil in Q4FY12.
Non Promoter Corporate                                                                               5.1                          However, it started operating over 90% from April-May 2012 and likely to operate at full capacity from
Public & Others                                                                                     12.3                          H2CY13. Bina refinery GRM also stood higher at US$11/bbl in Q4FY12 and the management guided for
                                                                                                                                  sustainable margin of over US$9/bbl at current crack spreads along with in-land benefit of ~US$1.5/bbl.
                                                                                                                                  Also, management guided for opex of US$2-2.5/bbl at full capacity utilization for Bina compared to
Relative to Sensex
130
                                                                                                                                  ~US$3/bbl for Mumbai refinery and US$1.7/bbl for Kochi refinery.
120
110                                                                                                                         Financial snapshot                                                                                 (Rs mn)
100
                                                                                                                             Year        Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs)           PE (x) EV/EBITDA (x) RoE (%) RoCE (%)
 90
 80                                                                                                                          FY11       1,536,450 42,762        2.8  16,499     45.6            15.7          11.4     11.2      6.2
 70                                                                                                                          FY12       2,121,396 48,127        2.3   7,808     21.6            33.2          10.1      5.0      5.2
                                                            Nov-11
                                                                     Dec-11
      May-11




                                                                                                          Apr-12
                                                                                                                   May-12
               Jun-11




                                                   Oct-11




                                                                              Jan-12
                        Jul-11
                                 Aug-11
                                          Sep-11




                                                                                       Feb-12
                                                                                                Mar-12




                                                                                                                             FY13E      2,319,861 56,183        2.4  16,212     44.8            16.0           8.7      9.9      6.8
                                                                                                                             FY14E      2,133,203 56,452        2.6  16,335     45.2            15.9           8.6      9.3      6.7
                                                                     BPCL                                Sensex
Source: Capitaline                                                                                                          Source: Company; IDBI Capital Research
    Q4FY12 Result Review – Bharat Petroleum Corporation Ltd.
    (BPCL)

                        Table: Quarterly highlights                                                                                       (Rs mn)
                         Year-end: March                           Q4FY12            Q4FY11         % Chg YoY            Q3FY12         % Chg YoY
                         Net sales                                 646,689           452,515               42.9          588,468                9.9
                         Expenditure                               595,851           436,074               36.6          551,371                8.1
                         EBITDA                                     50,838            16,441             209.2            37,097              37.0
                         EBITDA margin (%)                             8.5                3.8              476                6.3              223
                         Other income                                4,115             5,305             (22.4)            4,166              (1.2)
                         Interest                                    4,941             3,157               56.5            5,174              (4.5)
                         Depreciation                                4,681             4,828              (3.0)            4,667                0.3
                         PBT                                        45,331            13,762             229.4            31,422              44.3
                         Tax                                         5,703             4,410               29.3                 -                 -
                         PAT                                        39,628             9,352             323.8            31,422              26.1
                         EPS (Rs)                                    109.6              25.9             323.8               86.9             26.1
                         Crude throughput (MMT)                        6.0                5.6               7.5               6.1             (2.1)
                         GRM (US$/bbl)                                 4.2                6.9            (39.9)               3.5             18.6
                         Product sales (MMT)                           9.1                8.5               7.8               9.0               1.4
                        Source: Company; IDBI Capital Research



                         Kochi refinery expansion expected by FY16 from 9.5mtpa to 15.5mtpa
                             BPCL is expanding its Kochi refinery capacity from current 9.5mtpa to 15.5mtpa, which is likely to complete by FY16.
                             The company is planning to invest Rs142 bn for this project; out of which Rs7 bn is likely to be invested in FY13. Post
                             expansion, Nelson complexity for Kochi refinery would increase to 9 from current 5.5-6, which would increase its GRM
                             substantially.

                         Capex plan of Rs55 bn for FY13 including Rs15 bn in upstream
                             BPCL is planning to invest Rs55 bn in FY13 including Rs15 bn in upstream (primarily in Mozambique and Brazil
                             assets), Rs5 bn for improving complexity in Mumbai refinery, Rs7 bn for Kochi expansion, Rs7 bn for LPG cylinder plant
                             and Rs7-8 bn for augmenting retail marketing infrastructure. In upstream, the company and its consortium has a plan to
                             drill 10-12 wells in Mozambique and 8-9 wells in Brazil in FY13.

                         Maintaining zero net under-recovery for OMCs; See total UR of Rs1.6/1.3 tr for FY13/FY14
                             We maintain our subsidy share assumption for OMCs at nil and modeling government/upstream sharing ratio to
                             60%/40% for FY13E and FY14E. We expect total under-recovery to mount to Rs1.6tr in FY13 (crude price of
                             US$110/bbl and exchange rate of Rs50/US$) and Rs1.34 tr in FY14 at crude price of US$100/bbl and exchange rate of
                             Rs50/US$. For sensitivity analysis, with every Re depreciation under-recovery increases by Rs83 bn and with every
                             US$1/bbl rise in crude oil price UR increases by Rs33 bn in FY13.




2
Q4FY12 Result Review – Bharat Petroleum Corporation Ltd.
(BPCL)

                    Table: Susbidy sharing mechanism                                                                                  (Rs mn)
                     Year-end: March                           FY10        FY11      9MFY12      Q4FY12        FY12E       FY13E       FY14E
                     Auto fuel                               144,253     364,503     571,648     240,272     811,920    1,030,949     832,795
                     Cooking fuel                            316,315     417,423     402,592     170,898     573,490      569,786     504,403
                     Total                                   460,568     781,927     974,240     411,170    1,385,410   1,600,736    1,337,197
                     Shared by:
                     Government bonds                        260,000     410,000     450,000     385,000     835,000      960,441     802,318
                     % share                                    56.5        52.4        46.2        93.6         60.3        60.0         60.0
                     Upstream discount                       144,305     302,963     368,935     181,065     550,000      640,294     534,879
                     % share                                    31.3        38.7        37.9        44.0         39.7        40.0         40.0
                     OMC’s share                              56,355      68,964     155,306    -154,895         410            0           0
                     % share                                    12.2         8.8        15.9       (37.7)         0.0         0.0          0.0
                     Total                                   460,660     781,927     974,241     411,169    1,385,410   1,600,736    1,337,197
                     Upstream distribution
                     ONGC                                    115,550     248,923     302,960     141,696     444,656      519,491     433,964
                     % of upstream                              80.1        82.2        82.1        78.3         80.8        81.1         81.1
                     OIL India                                15,488      32,930      44,780      28,738       73,518      85,587      71,496
                     % of upstream                              10.7        10.9        12.1        15.9         13.4        13.4         13.4
                     GAIL                                     13,267      21,110      21,195      10,631       31,826      35,216      29,418
                     % of upstream                                 9.2       7.0         5.7         5.9          5.8         5.5          5.5
                    Source: Company; IDBI Capital Research



                     Increasing TP to Rs830 from Rs771; Maintain BUY
                          We are revising valuation for its upstream assets upwards to Rs300/share (Rs108 bn) from Rs259/share earlier on the
                          back of upward revision in recoverable gas reserves in Mozamibque from 17-30tcf to 24-50tcf. Consequently, our target
                          price is revised upwards to Rs830 from earlier Rs771. Maintain BUY.

                    Table: SOTP Valuation
                     Sum of parts                                           Rs mn                Rs/sh
                     FY13E BV (Rs/share)                                       470
                     1x on FY13E BV                                                                470
                     Value of investments (30% holding discount)
                     Oil India                                               6,438                  13
                     Petronet LNG                                           13,816                  27
                     IGL                                                    10,175                  20
                     Value of Upstream*
                     Mozambique                                             85,530                 237
                     Brazil - Campos                                        15,000                  41
                     Brazil - Sergipe                                        8,000                  22
                     Total price per share                                                         830

                    * details given below
                    Source: IDBI Capital Research




                                                                                                                                                  3
    Q4FY12 Result Review – Bharat Petroleum Corporation Ltd.
    (BPCL)

                        Table: Upstream assets valuation – EV/Boe basis
                                                             Estimated
                                                  BPCL                      Multiple*    Value       Value
                         Block                              reserve base                                                  Comment
                                                Stake (%)                  (US$/boe)    (Rs mn)    (Rs/share)
                                                              (mmboe)
                                                                                                                Gas discovery - with recoverable
                         Mozambique                 10.0        4,276          4x         85,530       237      reserve base of 24-50tcf. Valued
                                                                                                                     at lower base of 24tcf
                         Brazil - Campos            12.5          300          8x         15,000         41              Oil discovery
                         Brazil - Sergipe           20.0          100          8x          8,000         22          Oil and gas discovery
                         Total value                            4,676                    108,530       300

                        * exchange rate assumed at Rs50/US$
                        Source: IDBI Capital Research




4
Q4FY12 Result Review – Bharat Petroleum Corporation Ltd.
(BPCL)


Financial summary
 Profit & Loss Account                                                       (Rs mn)       Cash Flow Statement                                                 (Rs mn)
 Year-end: March                 FY11                    FY12       FY13E        FY14E      Year-end: March                       FY11       FY12      FY13E       FY14E
 Revenues                    1,536,450              2,121,396    2,319,861    2,133,203     Net income + Depreciation            35,263     31,917     43,121      45,909
 Growth (%)                       24.1                    38.1          9.4        (8.0)    Non-cash adjustments                (14,276)    (1,481)     (151)         827
 EBITDA                         42,762                 48,127       56,183       56,452     Changes in working capital           13,489    (20,404)    30,016     (19,039)
 Growth (%)                       40.0                    12.5        16.7           0.5
                                                                                            Cashflow from operations             34,476     10,033     72,985      27,697
 Depreciation & amortisation    18,914                 24,108       26,909       29,574
                                                                                            Capital expenditure                 (43,007)   (36,302)   (15,000)    (10,000)
 EBIT                           23,849                 24,018       29,274       26,878
                                                                                            Change in investments                41,512      5,693    (34,176)           -
 Growth (%)                       48.2                     0.7        21.9         (8.2)
 Interest                       12,468                 22,591       18,543       17,546     Other investing cashflow             (3,473)          -          -           -
 Other income                   17,103                 14,567       16,023       17,626     Cashflow from investing              (4,967)   (30,608)   (49,176)    (10,000)
 EBT                            28,483                 15,994       26,755       26,957     Issue of equity                       3,854           -          -           -
 Income taxes                   11,062                  7,482        9,364        9,435     Issue/repay debt                      4,137     31,961    (20,000)    (15,000)
 Effective tax rate (%)           38.8                    46.8        35.0         35.0     Dividends paid                       (6,449)    (6,092)    (2,979)     (2,979)
 Min int / inc from assoc        1,071                    705        1,178        1,187     Other financing cashflow              (577)           -          -           -
 Reported net income            16,350                  7,808       16,212       16,335
                                                                                            Change in cash & cash eq             30,475      5,293        830       (282)
 Adjustments                     (150)                       -            -            -
                                                                                            Closing cash & cash eq                7,970     13,263     14,093      13,811
 Adjusted net income            16,499                  7,808       16,212       16,335
 Growth (%)                       (3.5)                 (52.7)       107.6           0.8
 Shares outstanding (mn)         361.5                  361.5        361.5        361.5
 Adjusted EPS (Rs)                45.6                    21.6        44.8         45.2
 Growth (%)                       (3.5)                 (52.7)       107.6           0.8
 DPS (Rs)                         14.0                    11.0        10.0         10.0     Financial Ratios

                                                                                            Year-end: March                       FY11       FY12      FY13E       FY14E
 Balance Sheet                                                               (Rs mn)
                                                                                            Profitability & Return ratios (%)
 Year-end: March                            FY11        FY12        FY13E        FY14E      EBITDA margin                            2.8        2.3        2.4         2.6
 Cash and cash eq                           7,971      13,263       14,093       13,811
                                                                                            EBIT margin                              1.6        1.1        1.3         1.3
 Accounts receivable                       28,779      52,010       56,876       52,300
                                                                                            Net profit margin                        1.1        0.4        0.7         0.8
 Inventories                             182,135     210,971      195,910      201,479
                                                                                            ROE                                    11.2         5.0        9.9         9.3
 Others current assets                     86,421    127,761      129,274      129,647
 Investments                               84,600      78,906     113,082      113,082      ROCE                                     6.2        5.2        6.8         6.7
 Gross fixed assets                      343,311     358,311      373,311      383,311      WC & Liquidity ratios
 Net fixed assets                        191,518     186,724      174,815      155,241      Receivables (days)                        7          7          9           9
 CWIP                                      82,864    104,166      104,166      104,166      Inventory (days)                         47         36         34          37
 Intangible assets                          4,605       4,334        4,334        4,334     Payables (days)                          32         27         30          34
 Deferred tax assets, net                (13,074)    (16,778)     (18,130)     (19,492)     Current ratio (x)                        1.5        1.4        1.3         1.4
 Other assets                                  33           -            -            -
                                                                                            Quick ratio (x)                          0.2        0.2        0.2         0.2
 Total assets                            655,851     761,358      774,421      754,568
                                                                                            Turnover & Leverage ratios (x)
 Accounts payable                        122,737     172,235      188,348      173,193
                                                                                            Gross asset turnover                     4.8        6.0        6.3         5.6
 Other current liabilities                 83,314    116,914      122,134      119,616
 Provisions                                34,462      19,243       19,975       20,712     Total asset turnover                     2.4        3.0        3.0         2.8
 Debt funds                              251,855     283,816      263,816      248,816      Interest coverage ratio                  1.9        1.1        1.6         1.5
 Other liabilities                          9,975      10,351       10,351       10,351     Adjusted debt/equity                     1.3        1.6        1.4         1.2
 Equity capital                             3,615       3,615        3,615        3,615     Valuation ratios (x)
 Reserves & surplus                      149,893     155,184      166,181      178,265      EV/Sales                                 0.3        0.2        0.2         0.2
 Shareholder's funds                     153,508     158,799      169,797      181,880      EV/EBITDA                              11.4       10.1         8.7         8.6
 Total liabilities                       655,851     761,358      774,421      754,569
                                                                                            P/E                                    15.7       33.2       16.0        15.9
 BVPS (Rs)                                  424.6       439.2        469.6        503.1
                                                                                            P/BV                                     1.7        1.6        1.5         1.4
Source: Company; IDBI Capital Research




                                                                                                                                                                             5
    Q4FY12 Result Review – Bharat Petroleum Corporation Ltd.
    (BPCL)




                          Notes




    Sonam H. Udasi – Head Research                                                         (91-22) 4322 1375                                                                      sonam.udasi@idbicapital.com
    Dealing                                                                                (91-22) 6637 1150                                                                      dealing@idbicapital.com
    Key to Ratings
    Stocks:
    BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below.

    IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.)
    Equity Research Desk
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