Inventory gain, super-normal marketing margin may lift BPCL and HPCL numbers

  • Analysts expect HPCL, BPCL to report higher Ebitda
  • Jefferies India expects BPCL to report net income of Rs38.9 billion and HPCL to report net income at 30.3 billion

MUMBAI : State-run Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) will be reporting their Q4 numbers today. Though inventory gains, super-normal marketing margins and forex gains (stronger INR) during the fourth quarter mean a spectacular quarter for these companies, weak refining margins and debt may weigh on the quarterly performance.

Analysts expect these companies to report higher earnings before interest, tax, depreciation and amortisation (Ebitda) led by 3.75 a litre of increase in marketing margins for auto fuels amid a quarter-on-quarter decline in global product prices and a sharp $14 per barrel increase in end-period crude price.

"Overall while refining margins have fallen further quarter-on-quarter, we would highlight that the environment is particularly negative for the more complex refiners. Separately, the implied marketing margins for the diesel and gasoline surged in 4Q, as the companies did not fully pass on the global product price fall, hence we would expect marketing to be another strong quarter," said JP Morgan in its report dated 7 April.

Jefferies India expects BPCL to report net income of Rs38.9 billion and HPCL to report net income at 30.3 billion, up 8-12 times quarter-on-quarter from a low base of the previous quarter, which was impacted by significant inventory and forex losses.

During the quarter, Singapore gross refining margins (GRMs) averaged at $3.2 per barrel for the fourth quarter, declining 25% quarter-on-quarter due to a crash in light distillate cracks. While GRMs recovered in Mar’19 to $4.5/bbl, they are still trending well below the five-year average ($6.4/bbl). "Margin pressure appears to be largely driven by rising concerns on oil demand. We expect GRMs to improve closer to the onset of international maritime organisation regulations (expected from Jan’20), primarily led by a surge in diesel cracks which are currently subdued at $13 per barrel," said Emkay Research in its report dated 8 April.

Average Dated Brent price fell 7% quarter-on-quarter $63.1 per barrel in Q4. However, toward the second half, prices moved up due to Iranian/Venezuelan sanctions and OPEC cuts, and between the quarter ends, closed $14 per barrel higher, implying inventory gains for refiners.

At 11:42 am, BPCL was trading at 391.15 a share, up 4.07% while HPCL was trading at 298.50 a share, up 8.62% on the BSE.