Result Update Bharat Petroleum Corporation Accumulate Bharat Petroleum Corporation (BPCL) s results were in-line with our estimates on revenues and below our estimates on profitability front. Revenues increased 13% YoY due to higher crude throughput. EBITDA was lower than our estimates owing to lower GRM and lower marketing profits as compared to inventory gain in. Net Profit was below our estimates primarily driven by other income (down 9.1% QoQ). BPCL reported GRM of USD 7.89/bbl in (including inventory gain of USD 3/bbl) vs USD 5.9/bbl in (including inventory loss of USD 2.3/bbl). GRM s were lower than expected due to lower operational performance on the refining front. Core GRM stood at USD.9/bbl. Average GRM for 9MFY18 is USD.97/bbl vs. USD 5.3/bbl in 9MFY17. BPCL s crude throughput increased 7.2% YoY to 7.3 MMT led by higher utilisation from Kochi refinery (93% utilisation in vs 8.5% in ). Sales volume grew.9% to highest-ever 11.2mmt. Kochi refinery is expected to achieve 1% capacity utilisation by Q1FY19. This will lead to improvement in GRM s. Market sales were higher for 9MFY18 at 3.8 MMT vs 28.2 MMT (YoY). This was mainly due to increase in MS- Retail (7.8%), HSD- Retail (3.1%) and LPG (1.32%). GRMs at Kochi were markedly lower than Mumbai refinery GRMs. Refining throughput increased by 7% YoY entirely driven by higher volumes at Kochi. Export volumes declined 22.7% YoY while remaining the same as the previous quarter. We expect marketing sales volumes to grow at -5% CAGR over the next two years with stable marketing margins. BPCL have declared an interim dividend of ` 1/share. View: With crude prices having an upward trajectory, scope of marketing margins is limited. However, it can benefit from expansion in refining capacity. Recommend Accumulate with a TP of `. 525. Result (` Mn) Particulars YoY (%) QoQ (%) Net Sales,,1 5,35,27 13.2 5,33,252 13.7 Expenditure 5,7,281 5,2,22 1.3,97,97 15.3 Raw Material 5,3,337,3,9 1.3,5,21 1.3 Other Expenditure 3,178 31,98 1.9 32,888 1. Operating Profit 31,882 33,15 (3.9) 35,27 (9.) Other Income 7,27 5,511 32. 8, (9.1) Interest 2,2 1,39 8.5 2,38 (1.7) Depreciation,77,83.1, 5.7 PBT 3,38 32,91 (.5) 3,52 (12.) Tax 8,93 9,771 (8.5) 1,952 (18.3) Net Profit 21,37 22,719 (5.) 23,57 (9.1) CMP `55 Target / Upside ` 525/15% BSE Sensex 3,15 NSE Nifty 1,57 Scrip Details Equity / FV ` 19,9mn/` 1/- Market Cap ` 1,17bn USD 1bn 52-week High/Low `55/ Avg. Volume (no) 2,9,837 NSE Symbol Bloomberg Code Shareholding Pattern Dec 17 (%) BPCL BPCL IN Promoters 5.3 MF/Banks/FIs 8.5 FIIs 22.2 Public / Others 15 Valuation (x) FY18E FY19E FY2E P/E 1. 1. 1.1 EV/EBITDA 1.3 1.2 1.1 ROE 2. 25.5 25. ROCE 1.7 1. 1. Estimates (` mn) FY18E FY19E FY2E Net Sales 22,13,757 2,35,133 2,29,9 EBITDA 1,2,33 1,28,77 1,33,889 PAT 8,13 8,7 88,9 EPS (`) 3. 3.7 5. Sr. Analyst: Priyank Chandra Tel: +9122 9 9737 E-mail: priyank@dolatcapital.com Analyst: Nidhi Doshi Tel: +9122 9 9795 E-mail: nidhid@dolatcapital.com EPS (in `) 1.9 11.55 (5.) 11.99 (9.) Gross Margin (in %) 12.51 13.35 1.5 OPM (%) 5.2.19 -.2 - NPM (%) 3.5.2 -.2 - February 1, 218
Valuation We expect BPCL s growth to be better than its peer group in near-to-medium term due to positive impact from Kochi terminal. BPCL will benefit from Kochi refinery expansion from FY19. The stock is trading at 1.x FY18E and 1.x FY19E. We have an Accumulate rating on the stock with a target price of ` 525. Key highlights Revenue increased by 13.2% on a YoY basis to `,,1 mn. On a sequential basis, there was growth of 13.7%. There was a growth in employee cost of 13.9% on a YoY basis and de-growth of 12.% on a sequential basis to ` 7,7 mn. Other expenditure increased by 1.9% on a YoY basis to ` 3,178 mn. Sequentially there was a growth of 1%. Operating profit was at ` 31,882 mn in as compared to ` 33,15 mn in. This was a de-growth of 3.9%. Depreciation grew on a sequential basis at `,77. On a YoY basis, depreciation growth was.1%. Other income increased by 32% on a YoY basis to ` 7,27 mn. On a sequential basis, it decreased by 9.1%. Net profit was at ` 21,37 mn in as compared to ` 22,719 mn in, showing a de-growth of 5.%. February 1, 218 2
Revenue (` Mn) Gross Margin (%) 7,, 5,, 3, 2, 1, 18 17 1 15 1 13 12 11 1 9 1. 1.2 12.7 17. 1. 1.3 13. 11.5 9. 1. 12.5 EBITDA (` Mn) OPM (%) 5,, 35, 3, 25, 2, 15, 1, 5, 1 9 8 7 5 3 2 1 7.3 2.9 5. 7.7 8.3 3.1.2 3.9 2.2. 5.3 Net Profit (` Mn) NPM (%) 3, 25, 2, 15, 5 3.5 2.2 3.3.9 5. 2.9.2 3.2. 3.5 1, 2 1.3 5, 1 February 1, 218 3
Gross Refining Margin (USD/bbl) 1 9 8 7 5 3 2 1 8. 3.9 7.7.3.1 3.1 5.9..9 8. 7.9 8. 7.. Crude throughput (MMT).1. 5.9.2.2..8.. 7. 7.3.9.8.7..3.3 Export Sales (MMT).7...3.8.8...2 5..1.9.8.7..3.2.1.3.7 Market Sales (MMT) Sales Growth (%)..3..8.8.. 1 12 1 8 (2) 2 () () (8) -1.1 5.2 7.8 12.5 8.1 5.7 5. -5.3 3.2 9. 9.1 February 1, 218
Income Statement (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Net Sales 2,12,57 22,13,757 2,35,133 2,29,9 Total Income 2,12,57 22,13,757 2,35,133 2,29,9 Total Expenditure 18,77,382 2,89,32 23,,357 2,9,5 Raw Material 17,1,11 19,2,2 2,92,928 22,,32 Employee Expenses 3,91 1,9,25 51,58 Other Expenses 1,2,582 1,5,59 1,7, 1,8,15 Other Income 2,78 25,597 2,877 32,252 EBIDTA (Excl. OI) 1,35,125 1,2,33 1,28,77 1,33,889 EBIDTA (Incl. OI) 1,55,2 1,5,3 1,55,53 1,,11 Interest,9 8,35 9,359 9,827 Gross Profit 1,8,39 1,1,7 1,,29 1,5,31 Depreciation 21,7 25,292 28,327 31,159 PBT & EO Items 1,27,52 1,1,382 1,17,97 1,25,155 Share of Profit of equity accounted investee 9,3 9,9 1,1 1,921 Profit Before Tax 1,3,99 1,2,288 1,28,38 1,3,7 Tax 1,92 1,75 2,31 7,27 Net Profit 95,7 8,13 8,7 88,9 Balance Sheet (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Sources of Funds Equity Capital 13,113 19,9 19,9 19,9 Other Reserves 2,92,592 3,1,75 3,19,127 3,27,775 Net Worth 3,8,198 3,32,8 3,1,289 3,9,937 Secured Loans 1,1,5 1,2,22 1,38,2 1,52,87 Unsecured Loans 2,2,89 2,,958 2,93,53 3,23,19 Loan Funds 3,57,25 3,92,98,32,278,75,5 Deferred Tax Liability,58 2,575,7,939 Total Capital Employed 7,25,582 7,8,22 8,18,271 8,72,382 Applications of Funds Gross Block 3,78,257,38,257,98,257 5,58,257 Less: Accumulated Dep. 1,18,71 95,3 1,2,19 Net Block 3,3,839 3,71,57,3,22,32,1 Capital Work in Progress 1,17,27 1,18,83 1,12,83 1,7,22 Intang. Asset under dev 5,712 53,27 55,99 58,75 Investments 2,13,271 2,13,271 2,13,271 2,13,271 Current Assets, Loans & Advances Inventories 2,11,98 2,3,73 2,,192 2,88,213 Sundry Debtors 8,38 5,58,,88 Cash and Bank Balance 18,85 11,797 12,338 22,11 Loans and Advances 8,233 88,5 92,87 97,51 Other Current Assets 9,33 9,797 1,28 1,81 sub total 3,72,1 3,95,98,35,729,83,983 Less: Current Liabilities & Provisions Current Liabilities 3,39,571 3,5,55 3,7,377 3,93,9 Provisions 25,71 2,995 28,35 29,72 sub total 3,5,281 3,83,55,2,722,22,858 Net Current Assets 7,133 11,553 33, 1,125 Total Assets 7,25,582 7,8,22 8,18,271 8,72,382 E Estimates Cash Flow (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Profit before tax 1,3,99 1,1,382 1,17,97 1,25,155 Depreciation & w.o. 21,7 25,292 28,327 31,159 Net Interest Exp,9 8,35 9,359 9,827 Direct taxes paid (,1) (1,75) (2,31) (7,27) Change in Working Capital (17,733) (11,8) (2,912) (17,8) (A) CF from Opt. Activities 9,51 99,892 1,7,15 1,1,5 Capex {Inc./ (Dec.) in FA (95,3) (2,53) (2,2) (2,795) Free Cash Flow (,873) 37,357,953 53,78 Inc./ (Dec.) in Investments (59,1) Other 2,5 35 1,25 1,53 (B) CF from Invt. Activities (1,52,589) (1,9) (1,) (1,232) Inc./(Dec.) in Debt 1,2,81 35,725 39,298 3,228 Interest exp net (1,839) (8,35) (9,359) (9,827) Dividend Paid (Incl. Tax) (7,193) (,5) (77,58) (79,81) (C) CF from Financing 8, (32,575) (5,7) (5,59) Net Change in Cash (13,988) 5,17 51 1,272 Opening Cash balances 2,38,38 11,797 12,338 Closing Cash balances,38 11,797 12,338 22,11 Important Ratios Particulars Mar17 Mar18E Mar19E Mar2E (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.).7 5. 5.3 5.1 Interest / Sales.3... Tax/PBT 3. 33. 33. 35. Net Profit Margin.7 3.8 3.5 3. (B) As Percentage of Net Sales Cost of materials consumed 85.2 85.9 85.9 85.9 Employee Benefits Expense 1.8 1.9 1.9 2. Other Expenses.3..9 7. (C) Measures of Financial Status Debt / Equity (x) 1.2 1.2 1.3 1. Interest Coverage (x) 22.3 18. 1. 1.9 Average Cost of Debt (%) 2. 2.2 2.3 2.2 Debtors Period (days) 8.7 9. 9. 9. Closing stock (days) 38. 38. 39.. Inventory Turn. Ratio (x) 9.5 9. 9. 9.1 Fixed Assets Turnover (x) 5.3 5.1.9.7 WC Turnover (x) 282.1 191. 73.8 3. (D) Measures of Investment EPS (`) (excl. EO) 53.1 8.1 9. 5 EPS (`) 8.3 3. 3.7 5. CEPS (`) 59.1 55.9 58.1.8 DPS (`) 32.5 3. 35. 3. Dividend Payout (%) 7.2 9.7 8. 8.1 Profit Ploughback (%) 32.8 3.3 2. 19.9 Book Value (Rs.) 15.7 19.2 173.5 177.9 RoANW (%) 32. 2. 25.5 25. RoACE (%) 2.9 1.7 1. 1. ROAIC (%) 22. 17. 1.3 1.3 (E) Valuation Ratios CMP (`) 55 55 55 55 P/E (x) 9. 1. 1. 1.1 Market Cap. (` Mn) 8,9,9 8,9,93 8,9,9 8,9,9 MCap/ Sales (x)....3 EV (` Mn) 12,33,39 12,7,113 13,1,879 13,7,83 EV/Sales (x).. EV/EBDITA (x) 9.1 1.3 1.2 1.1 P/BV (x) 2.9 2.7 2. 2. FCF Yield (%) ().2 5.. Dividend Yield (%) 7.1. 7.7 7.9 E Estimates February 1, 218 5
DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 9 977 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 9 975 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 9 979 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 9 972 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 9 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 9 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 9 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 9 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 9 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 9 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 9 978 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 1
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