HOLD Rating as per Large Cap 12 months investment period

COMPANY UPDATE RETAIL EQUITY RESEARCH Bharat Petroleum Corp. Ltd. (BPCL) Oil Marketing & Distribution BSE CODE: 500547 NSE CODE: BPCL Bloomberg CODE: BPCL:IN SENSEX: 31,497 HOLD Rating as per Large Cap 12 months investment period CMP Rs. 478 TARGET Rs. 500 RETURN 5% 04 th October, 2017 Kochi stabilization to support future profitability Bharat Petroleum Corp. Ltd. (BPCL) is a leading player in the Indian petroleum industry with operations in both refining and marketing segments. BPCL s net revenue increased at a healthy pace of 21.7% YoY in Q1FY18 supported by higher refining and sales volume. Reported EBIDTA and PAT declined by 69% and 72% YoY, respectively mainly due to inventory loss as against gain in Q1FY17. We expect reported GRM to improve to USD5.5/bbl and USD5.8/bbl in FY17E and FY18E, respectively on the back of lower inventory losses. We project IOCL's net profit to grow at a CAGR of 5% over FY17-19E, led by higher crude oil throughput along with higher crude oil prices. Though we remain positive on BPCL, the rising capex may lead to a increase in depreciation and interest costs which may dent the company s profitability. Hence, we assign HOLD rating to the stock with a TP of Rs500 using SOTP valuation methodology. Inventory loss shadowed healthy operating performance BPCL s net revenue increased by 21.7% YoY in Q1FY18 supported by higher refining and sales volume. Crude throughput increased by 3.5% YoY to 6.4 (the highest-ever) million metric tonnes (mmt). Going forward, we estimate throughput to increase to 28.4 MMT and 31.0 mmt for FY18E and FY19E, respectively on the back of increasing capacity utilisation of Kochi refinery post its stabilisation. Domestic sales volume grew by 3% YoY to 10.0 mmt. However, reported EBITDA declined by 68.7% on YoY basis mainly due to inventory loss (Rs730 cr) in Q1FY18 as compared to gain in Q1FY17. Further, interest cost and depreciation rose sharply by 61.0% and 36.6% YoY, respectively and as a result, reported net profit declined by 71.6% YoY. Going forward, we expect BPCL s adjusted net profit to grow at a CAGR of 5% over FY17-19E led by higher crude oil throughput along with higher crude oil prices. Core GRM improved BPCL s core gross refining margin (GRM) stood strong at USD7.0/bbl (USD2.6/bbl in Q1FY17) as core GRM of Mumbain refinery expanded to USD7.6/bbl (USD3.1/bbl in Q1FY17) and Kochi refinery to USD6.1/bbl (USD2.0/bbl in Q1FY17). However, reported GRM stood at USD4.9/bbl (USD6.09/bbl in Q1FY17) due to inventory loss of USD2.1/bbl. Mumbai refinery reported GRM of USD6.1/bbl and Kochi refinery reported GRM of USD3.7/bbl including inventory losses. Inventory losses of Mumbai and Kochi refineries stood at USD1.6/bbl and USD2.4/bbl, respectively. Going forward, we expect reported GRM to improve to USD5.5/bbl and USD5.8/bbl in FY17E and FY18E, respectively on the back of lower inventory losses. Kochi stabilization underway As per the management, Kochi refinery expansion (from 9.5mmt to 15.5mmt) is on schedule and is expected to be completed by H2FY18. Once fully commissioned, the capability of Kochi refinery to process heavy crude with better product slate will benefit the overall GRMs. However, considering the stabilization period, it will be fully commissioned only in Q4FY18. Hence, we expect the full benefits to reflect only in FY19E. Outlook and Valuation We remain positive on oil marketing companies (OMCs) as benign crude price outlook along with improving refining margin are likely to drive earnings. Besides, upgradation and expansion of Kochi Refinery (9.5mmtpa to 15.5 mmtpa) will drive higher volumes as well as GRMs for the company. However, the company highlighted for a total capex plan of Rs7,800 cr in FY18 and Rs8,500 cr in FY19 which may lead to a rise in depreciation and interest costs. Hence, we assign HOLD rating on the stock with a target price (TP) of Rs500 using sum of the part (SOTP) valuation methodology wherein we value its standalone business at Rs402 (P/E of 10.0x for FY19E) and investments at Rs98. Key Risks: The rise in private player market share and impact of new tax regime (GST) on the profitability. Company Data Market Cap (Rs. cr) 103,745 Enterprise Value (Rs. cr) 122,905 Outstanding Shares (cr) 241.0 Free Float 36% Dividend Yield 4.5% 52 week high Rs. 546 52 week low Rs. 400 6m average volume (lacs) 0.3 Beta 0.9 Face value Rs. 10 Shareholding (%) Q3FY17 Q4FY17 Q1FY18 Promoters 54.9 54.9 54.9 FII s 22.7 22.5 22.2 MFs/Insti 6.7 6.7 7.1 Public 15.7 15.8 15.9 Others - - - Total 100.0 100.0 100.0 Price Performance 3 Month 6 Month 1 Year Absolute Return 10.5% 12.4% 14.3% Absolute Sensex 0.9% 5.3% 11.5% Relative Return* 9.6% 7.1% 2.7% *over or under performance to benchmark index Standalone (Rs. cr) FY17 FY18E FY19E Sales 202,022 216,858 241,407 Growth (%) 7.3% 7.3% 11.3% EBITDA 10,829 12,097 14,372 Margin (%) 5.4 5.6 6.0 PAT Adj 8,039 7,658 8,778 Growth (%) 13.9% -4.7% 14.6% Adj.EPS 36.8 35.0 40.2 Growth (%) 13.9% -4.7% 14.6% P/E 13.0 13.6 11.9 P/B 3.5 3.2 2.9 EV/EBITDA 11.6 10.5 8.8 RoE (%) 28.2 24.5 25.3 D/E 0.7 0.7 0.7

Quarterly Financials (Standalone) Profit & Loss Account Particulars (Rs cr) Q1FY18 Q1FY17 YoY Growth % Q4FY17 QoQ Growth % Sales 57,126 46,939 21.7 57,036 0.2 EBITDA 1,225 3,919 (68.7) 2,212 (44.6) Margin (%) 2.1 8.3 (621) 3.9 (173) Depreciation 589 431 36.6 524 12.5 EBIT 636 3,488 (81.8) 1,688 (62.3) Interest 179 111 61.0 148 21.3 Other Income 657 365 79.9 662 (0.9) Exceptional Items - - - - - PBT 1,114 3,742 (70.2) 2,203 (49.5) Tax 369 1,121 (67.1) 362 2.0 Reported PAT 745 2,621 (71.6) 1,842 (59.6) Adjustment - - - - - Adj PAT 745 2,621 (71.6) 1,842 (59.6) No. of shares (cr) 131.1 72.3-131.1 - EPS (Rs) 5.7 20.0 (71.6) 14.0 (59.6) Sum of the parts (SOTP) valuation Methodology Multiple Year Value of BPCL's Stake Value Per Share (Rs.) IOCL EPS 10.0x FY19E - 402 Investments - NRL EPS 10.0x FY19E - 59 - BPRL Book Value - - - 16 - PCCKL EPS 10.0x FY19E - 3 - Petronet Market Price - - 4,369 20 - Indraprastha Gas Market Price - - 4,635 21 - Oil India Market Price - - 632 3 20% holding discount to investments -24 Source: Company, Geojit Research Target Price 500

Standalone Financials Profit & Loss Account Sales 237,905 188,192 202,022 216,858 241,407 % change -8.5% -20.9% 7.3% 7.3% 11.3% EBITDA 8,315 11,025 10,829 12,097 14,372 % change 3.5 5.9 5.4 5.6 6.0 Depreciation 2,516 1,845 1,891 2,723 3,293 EBIT 5,799 9,180 8,938 9,373 11,079 Interest 583 565 496 688 774 Other Income 2,200 1,776 2,601 2,255 2,235 PBT 7,416 10,391 11,043 10,940 12,540 % change 24.7% 40.1% 6.3% -0.9% 14.6% Tax 2,331 3,335 3,003 3,282 3,762 Tax Rate (%) 31.4% 32.1% 27.2% 30.0% 30.0% Reported PAT 5,085 7,056 8,039 7,658 8,778 Adj* - - - - - Adj PAT 5,085 7,056 8,039 7,658 8,778 % change 25.2% 38.8% 13.9% -4.7% 14.6% No. of shares (cr) 218.5 218.5 218.5 218.5 218.5 Adj EPS (Rs) 23.3 32.3 36.8 35.0 40.2 % change 25.2% 38.8% 13.9% -4.7% 14.6% DPS (Rs) 7.4 10.3 27.5 17.5 20.0 Balance Sheet Cash 1,360 2,067 65 1,817 5,411 Accounts Receivable 2,561 2,189 4,758 5,107 5,685 Inventories 14,458 13,793 19,798 20,656 22,060 Other Cur. Assets 6,833 4,974 4,277 4,703 5,174 Investments 12,391 12,811 14,601 13,601 12,601 Gross Fixed Assets 41,810 25,036 35,138 43,321 52,381 Net Fixed Assets 20,315 23,208 31,437 36,897 42,665 CWIP 7,666 12,664 11,623 12,500 12,500 Intangible Assets - - - - - Def. Tax (Net) (1,708) (2,622) (3,502) (3,502) (3,502) Other Assets 4,161 3,651 5,431 5,431 5,431 Total Assets 68,036 72,735 88,488 97,210 108,026 Current Liabilities 31,293 30,534 36,317 38,844 42,983 Provisions - - - - - Debt Funds 13,098 13,591 21,004 24,004 27,004 Other Liabilities 1,179 1,288 1,498 1,498 1,498 Equity Capital 723 656 1,311 2,185 2,185 Reserves & Surplus 21,744 26,667 28,357 30,678 34,355 Shareholder s Fund 22,467 27,323 29,668 32,863 36,540 Total Liabilities 68,036 72,735 88,488 97,210 108,026 BVPS (Rs) 102.8 125.0 135.8 150.4 167.2 Cash flow Pre-tax profit 7,372 10,391 11,043 10,940 12,540 Depreciation 2,516 1,845 1,891 2,723 3,293 Changes in W.C 11,705 752 (2,093) 894 1,685 Others (1,090) (223) (2,105) (1,567) (1,461) Tax paid (2,363) (2,586) (3,115) (3,282) (3,762) C.F.O 18,140 10,179 5,621 9,709 12,295 Capital exp. (8,157) (9,325) (9,060) (9,060) (9,060) Change in inv. 3 - (1,790) 1,000 1,000 Other invest.cf 288 1,349 1,912 2,255 2,235 C.F - investing (7,865) (7,975) (8,939) (5,806) (5,826) Issue of equity - - 1,691 0 - Issue/repay debt (7,030) 2,029 7,412 3,000 3,000 Dividends paid (1,229) (3,021) (6,002) (3,824) (4,371) Other finance.cf (863) (848) (1,498) (1,327) (1,504) C.F - Financing (9,121) (1,840) 1,604 (2,151) (2,875) Chg. in cash 1,153 364 (1,714) 1,752 3,594 Closing cash 1,360 2,067 65 1,817 5,411 Ratios Y.E March FY15 FY16 FY17 FY18E FY19E Profitab. & Return EBITDA margin (%) 3.5 5.9 5.4 5.6 6.0 EBIT margin (%) 2.4 4.9 4.4 4.3 4.6 Net profit mgn.(%) 2.1 3.7 4.0 3.5 3.6 ROE (%) 24.3 28.3 28.2 24.5 25.3 ROCE (%) 21.2 28.7 25.2 21.6 22.1 W.C & Liquidity Receivables (days) 3.9 3.7 7.2 7.2 7.2 Inventory (days) 23.7 29.8 39.5 38.4 37.0 Payables (days) 19.8 17.3 21.7 21.7 21.7 Current ratio (x) 0.8 0.8 0.8 0.8 0.9 Quick ratio (x) 0.3 0.3 0.3 0.3 0.4 Turnover &Levg. Gross asset T.O (x) 5.9 5.6 6.7 5.5 5.0 Total asset T.O (x) 3.4 2.6 2.4 2.3 2.3 Debt/Equity ratio (x) 0.6 0.5 0.7 0.7 0.7 Valuation ratios EV/Sales (x) 0.5 0.6 0.6 0.6 0.5 EV/EBITDA (x) 14.0 10.5 11.6 10.5 8.8 P/E (x) 20.6 14.8 13.0 13.6 11.9 P/BV (x) 4.7 3.8 3.5 3.2 2.9

Recommendation Summary (last 3 years) Dates Rating Target 04-Oct-17 HOLD 500 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit's research desk has reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Kaushal Patel, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion. REGULATORY DISCLOSURES:

Dion is engaged in the business of developing software solutions for the global financial services industry across the entire transaction lifecycle and interalia provides research and information services essential for business intelligence to global companies and financial institutions. Dion is listed on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations, 2014 (SEBI Regulations) as a Research Analyst vide Registration No. INH100002771. Dion s activities were neither suspended nor has it defaulted with requirements under the Listing Agreement and / or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from doing business by BSE / SEBI or any other authority. In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership Dion confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at the time of publication of this report. (ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. Further, the Research Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company at the time of publication of this report. (ii) He, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. 2. Disclosures regarding Compensation: During the past 12 months, Dion or its Associates: (a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (c) Have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject (d) Have not received any compensation or other benefits from the subject company or third party in connection with this report. 3. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Kaushal Patel employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer, director or employee of the subject company 4. Disclosure regarding Market Making activity: Neither Dion /its Research Analysts have engaged in market making activities for the subject company. Copyright in this report vests exclusively with Dion. Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and Exchange Board of India before investing. Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Fax: +91 484-2979695, Website: geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Regn.Nos.: NSE: INB/INF/INE231337230 I BSE:INB011337236 & INF011337237 MSEI: INE261337230, INB261337233 & INF261337233, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager:INP000003203, NSDL: IN-DP-NSDL-24-97, CDSL: IN-DP-CDSL-648-2012, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226. Research Entity SEBI Registration Number: INH200000345