Bharat Petroleum Corporation Ltd

Institutional Equity Research Key data 19 June 2008 Sector Oil& Gas Market Cap Rs.7bn/US$2.3bn 52 Wk H/L (Rs) 560/260.25 Avg. daily vol. (6 month) 799,179 BSE Code 500547 NSE Code BPCL Bloomberg BPCLIN Reuters BPCL.BO Sensex 15,422 Nifty 4,582 Shareholding pattern (%) 31-Dec-07 31-Mar-08 FIIs NRI, Adr/GDR 10.0 10.3 MFs and institutions 19.4 19.2 Promoters 64.3 64.3 Others 6.4 6.3 Absolute returns (%) 1mth 3mth 12mth BPCL (22.4) (31.0) (16.6) Sensex (11.5) 4.0 9.5 BSE Oil (10.8) 3.7 35.4 Bharat Petroleum Corporation Ltd Reduce Current Price: Rs.2 Target Price Rs.284 Lower than expected Oil bonds lead to dismal results Figure 1: Actual vs Religare Estimates Rs mn Q4 FY08 Q4 FY08E Difference Net Sales 325786 334021-2.46% EBITDA 8600 22182-61% EBITDA margins (%) 2.6% 6.6% -400 bps Adj. PAT 584 13299-95.6% Adj. PAT margins (%) 0.18% 3.9% -372 bps Source: Religare Institutional Equity Research Financial Highlights In Q4 FY08, BPCL reported net sales of Rs 325.7 bn, an increase of 35% Y-o-Y, against our estimate of Rs 334 bn. The Y-o-Y increase in sales was because of higher crude oil prices, higher oil bonds at 39.7 bn against our expectation of Rs 48.5 bn, and 8.6% higher sales volume. Higher sales didn t flow to EBITDA levels thanks to the government policy of regulating prices of petrol, diesel, LPG and kerosene. EBITDA decreased from Rs 12.7 bn in Q4 FY07 to Rs 8.6 bn in Q4 FY08. Interest expenditure increased by 31% to Rs 2156 mn. Increase in interest burden was on account of increased debt levels as oil marketing companies are borrowing heavily to finance their working capital needs. In Q4 FY08, BPCL posted a profit of Rs 584 mn as compared to a profit of Rs 60 mn in Q4 FY07. Valuations and Recommendation Q4FY08 Result Review Dikshit Mittal Dikshit.mittal@religare.in +91 22 6655 0115 With crude oil prices at all time high, earnings for Oil Marketing companies are as uncertain as ever, even after recent government package. The only near term likely trigger is any decline in crude oil prices. However, we believe that the government has already left some scope for a price decline by leaving Rs 2 bn under recoveries unaccounted for in the recent package announced fo OMCs. The profitability of these companies continues to remain dependent on oil bonds. We maintain Reduce on BPCL. Figure 2: Quarterly Performance Y/E March FY07 FY08 FY07 FY08 1Q 2Q 3Q 4Q 1Q 2QA 3QA 4QA Net Sales 227,107 265,174 242,056 241,265 238,694 251,4 289,284 325,786 975,602 1,105,468 Change (%) 42 64 28 13 5-5 20 35 35 13 EBITDA -2609 17138 6892 12738 2060 15649 4371 8600 34159 306 EBITDA margin (%) -1.1 6.5 2.8 5.3 0.9 6.2 1.5 2.6 3.5 2.8 Change (%) -18.5-1177.9-175.7-35.1-179.0-8.7-36.6-32.5 495.5-10.2 Depreciation 1814.0 1964.0 2484.0 2778.0 2276.0 2322.0 3065.0 3319.0 40.0 10982.0 Other Income 1091 2207 1487 2547 4133 3548 1868 1307 7332 10892 Interest Expenses 8 920 1298 1648 1240 1228 1620 2156 4774 6244 PBT -4240 16461 4597 10859 2885 15751 15 4468 27677 24694 PBT margin (%) -1.87 6.21 1. 4.50 1.21 6.26 0.55 1.37 2.84 2.23 PBT growth (%) -1.53-925.94-145.00-39.75-168.04-4.31-37.59-58.85 1735.34-6.16 Extraordinary exp/(inc) 0 0 0 0 0 0-1279 0 0-1279 Tax 25 3876 1562 4159 958 5369-44 3884 9622 10167 Effective tax rate (%) -0.59 23.55 33.98 38.30 33.21 34.09-2.77 86.93 34.77 41.17 PAT -4265 12585 3035 60 1927 10382 2913 584 155 156 Adjusted PAT* -4265 12585 3035 60 1927 10382 1634 584 155 14527 AdjPAT margin (%) -1.9 4.7 1.3 2.8 0.8 4.1 0.6 0.2 1.9 1.3 Change (%) -1.1-720.0-129.6-62.5-145.2-17.5-4.0-91.3 1291.0-19.5 Equity capital (Rsmn) 3615 3615 3615 3615 3615 3615 3615 3615 3615 3615 Adj EPS (Rs) -11. 34.81 8.40 18.53 5.33 28.72 4.52 1.62 49.94 40.19 Source: Religare Institutional Equity Research, Bloomberg, * Excluding extraordinary

Other business highlights Crude throughput for the quarter was at 5.1 MMT, and marketing sales stood at 7 MMT. Average gross refining margins (GRMs) were at $6.8/barrel as compared to $5.1/bbl in Q4 FY07. Jump in GRMs was due to better Singapore refining margins, and increased refinery complexity. However, increased margins were not enough to compensate for mounting marketing losses. 2

Stock performance BPCL Absolute Perf. From Apr 04 2,500 2,000 1,500 1,000 500 0 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Relative Perf. From Apr 04 150 130 50 30 10 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Relative Perf. From Apr 05 to Mar 06 120 60 Apr-05 Jun-05 Sep-05 Dec-05 Mar-06 Relative Perf. From Apr 06 to Mar 07 120 60 50 Apr-06 Jun-06 Sep-06 Dec-06 Mar-07 150 140 130 120 Relative Perf. From Apr 07 to Mar 08 Apr-07 Jun-07 Sep-07 Dec-07 Mar-08 Relative Perf. From Apr 08 60 1-Apr 16-Apr 1-May 16-May 31-May 15-Jun Source: Bloomberg, Religare Institutional Equity Research 3

12 month forward rolling band charts BPCL INSTITUTIONAL EQUITY RESEARCH P/E Band 1,600 (Rs) 1,400 1,200 1,000 0 600 400 200 0 25x 20x 15x 10 x P/BV Band 0 (Rs) 0 2.5x 0 600 500 2x 1.5x 400 300 1x 200 1,050,000 950,000 850,000 750,000 650,000 550,000 450,000 350,000 250,000 150,000 50,000 EV/EBITDA Band 26x 20x 14x 8x EV/Sales Band 450,000 400,000 350,000 300,000 250,000 0.35x 0.3x 0.25x 0.2x 200,000 150,000,000 50,000 Mkt cap/sales Band 350,000 300,000 250,000 200,000 0.25x 0.2x 0.15x 150,000 0.1x,000 50,000 0 Source: Bloomberg, Religare Institutional Equity Research 4

Financials Income statement Y/E, 31st March FY06 FY07 FY08 FY09E FY10E Net sales 775,012 982,934 1,105,468 1,199,287 1,130,251 EBITDA 9,407 35,362 30,6 12,487 18,547 EBITDA margin (%) 1.2 3.6 2.8 1.0 1.6 Depreciation 7,6 9,041 10,982 10,329 10,729 EBIT 1,727 26,321 19,698 2,159 7,818 Other income 4,819 6,129 12,337 15,894 20,020 Interest Exp/(Inc) 2,474 4,774 6,244 8,389 10,7 PBT (Operating) 4,072 27,676 25,791 9,663 16,931 PBT margin (%) 0.5 2.8 2.3 0.8 1.5 Extra ord (inc)/exp 0 0-1,279 0 0 Taxes 1,155 9,622 10,167 3,189 5,587 Minority interest PAT( Reported) 2,916 18,055 16,3 6,474 11,344 Minority Interest Adj PAT 2,916 18,055 15,624 6,474 11,344 Adj PAT margin (%) 0.4 1.8 1.4 0.5 1.0 Quarterly Financials Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Net sales 241265 238694 2514 289284 325786 Changes (%) 13.2 5.1-5.1 19.5 35.0 EBITDA 12738 2060 15649 4371 8600 Changes (%) -35.1-179.0-8.7-36.6-32.5 Margin (%) 5.3 0.9 6.2 1.5 2.6 PAT 60 1927 10382 2913 584 PAT adj 60 1927 10382 1634 584 Changes (%) -62.5-145.2-17.5-46.2-91.3 Margin (%) 2.8 0.8 4.1 0.6 0.2 EPS adj (Rs) 18.5 5.3 28.7 4.5 1.6 EPS dil (Rs) 18.5 5.3 28.7 4.5 1.6 Ratios Y/E, 31st March FY06 FY07 FY08 FY09E FY10E Growth Net sales (%) 30.4 26.8 12.5 8.5-5.8 EBITDA (%) -43.0 275.9-13.2-59.3 48.5 PAT adjusted (%) -69.8 519.1-2.5-63.2 75.2 EPS adjusted (%) -69.8 519.1-2.5-63.2 75.2 EPS diluted (%) -69.8 519.1-2.5-63.2 75.2 EPS Consl and dilu. (%) -69.8 519.1-2.5-63.2 75.2 Valuations P/E (x) 33.5 5.4 6.2 15.1 8.6 P/BV (x) 0.9 1.0 0.8 0.8 0.7 EV/EBITDA (x) 11.3 3.0 3.5 8.5 5.7 EV/Sales (x) 0.1 0.1 0.1 0.1 0.1 Profitability EBITDA margin (%) 1.2 3.6 2.8 1.0 1.6 Adj PAT margin (%) 0.4 1.8 1.4 0.5 1.0 RoE (%) 3.8 18.6 15.3 5.3 18.4 RoCE (%) 1.1 12.7 8.0 0.7 2.3 RoIC (%) 0.7 7.9 5.1 0.5 1.4 B/S ratios Inventory days 46 36 36 34 33 Creditor days 25 24 27 27 27 Debtor days 6 5 5 5 5 Working Capital days 19 12 9 6 6 Net debt/equity 1.0 1.1 1.2 1.6 1.7 * ROIC is calculated on post tax basis. Balance sheet Y/E, 31st March FY06 FY07 FY08E FY09E FY10E Liabilities Equity share capital 3000 3615 3615 3615 3615 Total Res. & Surplus 88394 99120 115067 119893 128142 Total Shareholders' fund 91394 102735 118682 123508 131757 Convertible Debt Others Debt 83736 108292 133292 183292 228292 Total Loans 83736 108292 133292 183292 228292 Deferred tax liability (net) 13558 13826 13826 13826 13826 Total liabilities 188689 224854 2651 320626 373876 Assets Net fixed assets & others 99174 109810 106829 104500 101771 Capital WIP & others 11681 8523 23523 43523 63523 Total non-current assets 855 118334 130352 1423 165295 Total investments - non current 38774 73854 108854 153854 188854 Current assets Inventories 448 86613 582 104959 95154 Sundry debtors 13159 15187 12863 177 16876 Cash & cash equivalents 4921 8640 15617 6264 12581 Cash 4921 8640 939 1177 1232 Liquid investments 0 0 14678 5087 11349 Other current assets 24602 34993 28560 28560 28560 Total current assets 133129 145432 157622 1576 153172 Total current liabilities 88945 102006 122437 130349 124853 Total provisions 5125 10761 8591 8591 8591 Net current assets 360 32666 26594 18749 19727 Misc. expenditure 0 0 0 0 0 Total assets 188689 224854 2651 320626 373876 Cash flow Y/E, 31st March FY06 FY07 FY08E FY09E FY10E Cash from operations PBT 4,072 27,676 27,0 9,663 16,931 Tax paid 1,155 9,622 9,475 3,189 5,587 Dep & amortization 7,6 10,171 10,982 10,329 10,729 Working capital changes 26927-6394 -20749 1745-5284 Others 10228 Net cash from operations -6,103 34,619 49,326 15,058 27,356 Cash from investments Capital expenditure 45276 17650 23000 200 200 Sale/purchase of inv & others 22003 350 35000 45000 35000 Net cash from investments 67278 52730 500 73000 63000 Cash from financing Issue of shares & share premium 615 0 (0) 0 0 Dividend paid 4 5785 1446 1446 1446 Debt change 44920 23895 24798 49798 43351 Others 28750 Net cash from finanacing 73382 18 23351 48351 415 Net change in cash 0 0 14,678-9,591 6,262 Per share data Y/E, 31st March FY06 FY07 FY08E FY09E FY10E EPS adjusted 8.1 49.9 43.2 17.9 31.4 EPS diluted - wtd 8.1 49.9 43.2 17.9 31.4 EPS Consl and diluted 8.1 49.9 43.2 17.9 31.4 CEPS 35 75 79 46 61 Book value 305 284 328 342 364 Dividend 3.0 16.0 4.0 4.0 4.0 O/s shs.-actual (mn) 300.0 361.5 361.5 361.5 361.5 O/s shs.-diluted (mn) 300.0 361.5 361.5 361.5 361.5 O/s shs wtd / diluted (mn) 300.0 361.5 361.5 361.5 361.5 5

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