BPCL reported lower-than-expected 1QFY10 EBITDA of Rs7.5 billion down 197% y-o-y and 82% q-o-q.
This was because the government did not issue oil bonds (v/s our estimate of Rs4b), lower GRM at $3.2/bbl, which were partially offset by product inventory gains of Rs3 billion.
Reported PAT was Rs6.1 billion helped by Rs7 billion other income, including Rs2.3 billion in forex gains, and Rs2.4 billion of interest on oil bonds.
Of the gross under-recovery of Rs10.8 billion, BPCL received upstream discounts of Rs1.6 billion leading to net under-recovery of Rs9.3 billion. BPCL shared 85% of the gross under-recoveries.
Average retail fuel loss for OMCs in 1QFY10 was Rs1/ltr for petrol, nil for diesel, Rs13/ltr for kerosene and Rs85/cylinder for domestic LPG.
BPCL’s blended GRM was $3.2/bbl (v/s $12.8/bbl in 1QFY09 and $4.9/bbl in 4QFY09). 1QFY10 throughput was at 4.2mmt, down 16% y-o-y and 21% q-o-q on maintenance shutdowns for 15 days.
Management indicated that the Bina refinery was 95% complete and expected to achieve mechanical completion as planned by December 2009.
In 1QFY10 it seems upstream companies bore the subsidy towards auto fuels with the government not sharing in it. We believe the government will decide on its sharing in 2QFY10.
We model the OMCs’ share at 20% of under-recoveries. Our Brent oil price assumption is $60/bbl in FY10 and $65/bbl in FY11.
Refining outlook is still weak due to new capacities (1.4mmbbl/d in 2009) even as demand from key consuming geographies remains weak.
We are revising our FY10 Singapore GRM assumption from $4/bbl to $3.5/bbl and maintain FY11 assumption at $4/bbl. The stock trades at 11x FY10E EPS of Rs42 and 1.1x FY10E BV of Rs403.
We maintain a BUY recommendation.