23 February 2012
Update | Sector: Oil and Gas
BPCL
BSE SENSEX
S&P CNX
18,145
5,505
CMP: INR625
TP: INR735
Buy
Shell's bid for Cove Energy values BPCL's stake in
Mozambique block at INR220/share
Increasing BPCL's TP to INR735/share; Maintain Buy
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
Y/E March
BPCL IN
361.5
713/459
6/-19/10
225.9
4.6
2011 2012E 2013E
Sales (INR b) 1,536 2,089 2,027
EBITDA (INR b) 43
52
55
NP (INR b)
16
15
18
EPS (INR)
45.2 42.5 48.5
EPS Gr. (%)
0.2 -6.1 14.1
BV/Sh. (INR) 424.6 455.4 491.0
P/E (x)
13.8 14.7 12.9
P/BV (x)
1.5
1.4
1.3
EV/EBITDA (x) 11.3
8.8
8.0
EV/Sales (x)
0.3
0.2
0.2
RoE (%)
11.1
9.7 10.2
RoCE (%)
5.5
6.6
7.1
Shareholding pattern % (Dec-11)
Others,
17.8
Foreign,
7.3
BPCL's JV partner in the Mozambique block, Cove Energy plc (COV LN), has received a
firm intention from Royal Dutch Shell plc (RDSA LN) to buy its 100% outstanding
shares for GBP992m (USD1.6b). Cove Energy has an 8.5% stake in the Mozambique
block and based on Shell's bid, the implied value of BPCL's 10% stake is ~INR220/share,
more than double of our current value.
How would Shell's entry impact BPCL? Apart from being a valuation benchmark, we
believe Shell's entry would reduce the execution risk in this large project due to its
technical expertise in E&P and presence in the LNG value chain. Shell is a global E&P
giant with a market cap of USD230b. The market cap of Anadarko (APC LN), the
current operator, is USD43b. The construction of a floating LNG facility would be
critical for commercializing gas from the Mozambique block and Shell's experience at
the Prelude floating LNG facility (first in the world) in Australia (FID in May 2011, likely
completion in 2016) would be useful in Mozambique.
Expect first gas from Mozambique in 2018; reserves pegged at 30+tcf
Anadarko (operator) has estimated the recoverable reserves of the
Mozambique block's at 15-30tcf and in-place resources at 30-50+ tcf of natural
gas. To put it in perspective, this compares with the 12tcf reserves announced
by Reliance Industries (RIL) for its KG-D6 block.
Anadarko has decided to build a two-train LNG facility to monetize this large
resource base, which is expandable to six trains. The distance of the basin
from the shore is only 50km and Mozambique's geographic location is also
ideal as it is near to high gas demand areas of Asia. The pre-FEED activity for
LNG development is nearing completion and FEED activity is expected to
start soon.
The final investment decision (FID) is expected to come by July-Aug 2013
and production is expected in 2018-19.
BPCL's upstream capex at USD350m each in FY13/ FY14: BPCL has spent ~INR30b
on its overall E&P portfolio, out of which ~INR25b was spent on Brazil and
Mozambique. Over the next two years, BPCL plans to spend USD350m in
both FY13 and FY14. For FY13, it expects to spend ~USD140-150m on Brazil
blocks, USD100m on Mozambique blocks and USD30-40m on domestic blocks.
It plans to drill 7-8 wells in its Brazilian blocks and 12 wells in Mozambique.
Domestic
Inst, 19.2
Promoter
55.8
Stock performance (1 year)
BPCL
Sens ex - Rebas ed
800
700
600
500
400
Increasing E&P value and target price; Maintain Buy
Shell's entry into Mozambique block reduces the execution risk and hence
increases confidence of timely completion as well as recovery. We are
shifting our base case valuation based on average recovery of 22.5tcf to high
case of 30tcf and believe that there could be further upside to this number.
We are revising our E&P value for BPCL from INR90/share to INR134/share
resulting in a revised target price of INR735/share (v/s earlier target price of
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); Tel: +91 22 3982 5432
Deepak Dult
(Deepak.Dult @MotilalOswal.com); Tel: +91 22 3982 5445

BPCL
INR690/share) based on average of P/B of 1x, EV/EBITDA of 5x and P/E of 9x FY13E.
Investment value of INR307/share comprise of INR151/share from E&P, INR70/
share from listed investments (post 25% discount), INR43/share from Bina refinery
(post 15% discount) and INR44/share for treasury shares.
Adjusted for E&P value, BPCL trades at 0.9x FY13E BV. The key things to watch
(apart from subsidy sharing) are the start of commercial production at the Bina
refinery at full utilization levels and GRM performance. BPCL is our top pick among
OMCs. Maintain
Buy.
Mozambique block - Lot more to come
The JV partners in the Mozambique block are Anadarko (operator with 36.5%
stake), Mitsui (20%), Mozambique National Oil Company (20%), BPCL (10%),
Videocon (10%) and Cove Energy (8.5%).
Anadarko has deployed 2 rigs in this acreage and has an active drilling program. As
the acreage is still in the exploration and appraisal stage, we expect the
recoverable reserve number to expand further.
Low
15.0
2,850
3.5
10.0
479
10
48
132
67
High
30.0
5,700
3.5
20.0
958
10
96
265
134
Average
22.5
4,275
3.5
15.0
718
10
72
199
101
Source: MOSL
Shell's bid for Cove Energy
values BPCL's stake at INR220/
share
Cove Energy
Shell bid (GBPm)
992
Shell bid (USD b)
1.6
Mozambique share (%) 90.0
Cove Energy's stake
in Mozambique (%)
8.5
Implied Mozambique
value (USDb)
16.5
BPCL's stake (%)
10.0
Value to BPCL (USDb)
1.6
Value to BPCL (INR b)
79.1
Per share value
to BPCL (INR)
220
Source: Cove Energy/MOSL
Revised base case value to INR134/share; now based on high case reserve of 30tcf
Likely recovery (tcf)
Likely recovery (mmboe)
Valuation (USD/boe)
Value (USDb)
Value (INRb)
BPCL's stake (%)
Value to BPCL (INR b)
Value (INR/sh)
FY13E value*
*discounted by 6 years @12%
Operator Anadarko indicates Mozambique potential at 15-30tcf
Source: Anadarko/MOSL
23 February 2012
2

BPCL
Mozambique block's final investment decision (FID) expected in 2013; first gas in 2018
Source: Cove Energy/MOSL
Currently operating 2 rigs; expect further increase
in reserves
With 15+ new prospects, 2012 will be a busy schedule at
Mozambique block
Source: Anadarko/MOSL
Source: Anadarko/MOSL
BPCL's E&P business has met with huge success
BPCL's E&P business has turned out to be a huge success with multiple discoveries
in its Brazil and Mozambique acreage.
BPCL's E&P activity is carried through its 100% subsidiary Bharat PetroResources
Ltd, which has 27 E&P blocks (9 in India and 18 abroad). BPCL has an overseas
presence in Australia, Brazil, East Timor, Indonesia, Mozambique and the UK. Out
of the total acreage of 81,000sqkm, ~91% is offshore.
23 February 2012
3

BPCL
BPCL's E&P strategy:
BPCL's entry into E&P business is led by the thought of being
self-sufficient in sourcing crude requirement for its refineries (shielding it from
vagaries of crude price at entity level). BPCL has consciously entered into countries
with a very low political risk. Further, at this stage BPCL prefers to enter only into
exploratory blocks and would not be entering into producing blocks.
BPCL has recorded 9 discoveries till date in Mozambique
No Discovery
Brazil - Offshore
1 Wahoo - 1
2 Wahoo-2
3 Barra
Mozambique - Offshore
4 Windjammer
5 Barquentine
6 Lagosta
7 Tubarao
8 Barquentine-2
9 Camarao
10 Barquentine-3
11 Lagosta-2
12 Lagosta - 3
Indonesia - Offshore
13 Badik-1
Date
Oct-08
Nov-09
Oct-10
Mar-10
Oct-10
Nov-10
Feb-11
Aug-11
Oct-11
Nov-11
Jan-12
Feb-12
Nov-10
Basin
Campos
Campos
Sergipe-Alagoas
Rovuma
Rovuma
Rovuma
Rovuma
Rovuma
Rovuma
Rovuma
Rovuma
Rovuma
Tarakan
Operator
Anadarko
Anadarko
Petrobras
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
Anadarko
BPCL Stake (%)
12.5
12.5
20.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
12.5
Oil/Gas Pay Zone (m)
Oil
Oil
Oil & Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
65
59
365
126
168
34
70
73
202
237
176
Oil & Gas
40
Source: Company/MOSL
Brazil portfolio - Expect further upsides from Sergioe-Alagoas basin
BPCL has announced three discoveries in its Brazil with two in the Campos basin
(where Anadarko is the operator) and one in Sergipe-Alagoas basin (with Petrobras
as operator).
Out of the three discoveries, Anadarko has indicated the likely recoverable
reserves of 150-200mmbbl in Wahoo discovery. Appraisal wells are planned in the
Sergipe-Alagoas basin (JV partner Petrobras) and post that we expect to get some
indication on the recoverable numbers in the block.
We currently value BPCL's 12% stake in Wahoo discovery at INR17/share (200mmbbl
of recoverable reserves based on USD8/boe, production start in FY17). We do not
assign any value for other two blocks and would await more clarity from the
operator in terms of the reserve size.
23 February 2012
4

BPCL
Valuation and view
We are revising our E&P value for BPCL from INR90/share to INR134/share resulting in
a revised target price of INR735/share (v/s earlier target price of INR690/share) based
on average of P/B of 1x, EV/EBITDA of 5x and P/E of 9x FY13E. Adjusted for E&P value,
BPCL trades at 0.9x FY13E BV. BPCL is our top pick among OMCs. Maintain
Buy.
EV/EBITDA Valuation
FY13E EV/EBITDA Multiple (x)
EBITDA (INR b)
EV (INR b)
Net Debt (INR b)
Implied M Cap (INR b)
No of Shares (In m)
Implied Mcap (INR/sh)
Investments (INR/sh)
Fair value (INR/sh)
4.0
55
219
142
77
362
213
307
520
4.5
55
247
142
104
362
289
307
596
5.0
55
274
142
132
362
365
307
672
5.5
55
302
142
159
362
441
307
748
6.0
55
329
142
187
362
517
307
824
P/B Valuation
FY13E PB Multiple (x)
FY13 Book Value (INR/sh)
Implied Value (INR/sh)
Investments (INR/sh)
Fair value (INR/sh)
0.8
491
393
307
700
0.9
491
442
307
749
1.0
491
491
307
798
1.1
491
540
307
847
1.2
491
589
307
896
P/E Valuation
FY12E PE Multiple (x)
Cons. FY13 EPS* (INR/sh)
Implied Value (INR/sh)
Investments (INR/sh)
Total Value
*adjusted for investments
7.0
47.6
333
307
640
8.0
47.6
381
307
688
9.0
47.6
428
307
736
10.0
47.6
476
307
783
11.0
47.6
524
307
831
Fair value (INR/sh)
EV/EBITDA
P/B
P/E
Average
CMP
% upside/(downside)
520
700
640
620
625
-1
596
749
688
678
625
8
672
798
736
735
625
18
748
847
783
793
625
27
824
896
831
850
625
36
BPCL's investment valued at INR307/sh
INR b
Investments
Oil India
Petronet LNG
Indraprastha Gas
Treasury Shares
Unlisted Investments
Bharat Oman
E&P Potential
Total
4.6
13.0
7.6
15.8
15.5
54.6
111.1
12.7
36.0
20.9
43.7
42.9
151.1
307.3
25%
25%
25%
25%
discount
discount
discount
discount
to
to
to
to
CMP/TP
CMP/TP
CMP/TP
CMP/TP
INR/sh
15% discount to investment
Brazil, Mozambique discoveries
Source: MOSL
23 February 2012
5

BPCL
Financials and Valuation
Income Statement (Consolidated)
Y/E March
Net Sales
Change (%)
Finished Gds Purchase
RM & Other exp
Other operating expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
Extraordinary Items (net)
PBT
Tax
Rate (%)
Minority Interest
PAT
Adj. PAT
Change (%)
(INR Million)
2008
2009
2010
2011
2012E
2013E
1,112,431 1,365,571 1,238,167 1,536,450 2,089,358 2,027,079
13.3
22.8
-9.3
24.1
36.0
-3.0
447,583
601,199
567,667
701,497
958,277
890,848
567,540
634,443
533,501
692,475
967,042 1,020,853
60,271
96,281
106,461
99,865
111,617
60,515
37,037
33,648
30,539
42,612
52,422
54,863
3.3
2.5
2.5
2.8
2.5
2.7
12,921
12,617
14,446
18,914
24,209
25,190
7,149
24,043
11,247
12,468
18,575
15,772
11,673
14,358
23,652
17,252
14,704
12,808
1,560
0
-777
0
0
0
30,200
11,346
27,721
28,483
24,342
26,709
11,075
4,104
10,235
11,062
7,978
8,179
30.0
30.0
36.9
38.8
32.8
30.6
1,430
904
876
1,071
1,005
1,005
17,695
6,338
16,610
16,350
15,359
17,525
15,143
6,338
16,324
16,350
15,359
17,525
-28.3
-58.1
157.6
0.2
-6.1
14.1
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority interest
Loans
Deferred Tax
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Intangibles
Curr. Assets, L & Adv.
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Liabilities
Provisions
Net Current Assets
Less: Miscellaneous exp.
Application of Funds
E: MOSL Estimates
2008
3,615
125,454
129,069
8,606
160,658
18,108
316,441
251,944
108,390
143,554
24,414
92,810
0
2009
3,615
129,497
133,112
9,015
242,392
15,257
399,775
263,546
120,483
143,062
61,727
164,000
3,855
2010
3,615
137,814
141,429
9,396
266,921
11,477
429,223
302,023
134,524
167,499
78,217
119,323
3,855
2011
3,615
149,893
153,508
9,975
251,855
13,074
428,412
344,851
152,581
192,269
82,864
84,600
3,855
2012E
3,615
161,022
164,638
10,979
238,113
13,295
427,025
366,582
176,790
189,792
82,864
117,336
3,855
(INR Million)
2013E
3,615
173,895
177,510
11,984
208,406
13,525
411,426
396,907
201,980
194,927
82,864
122,336
3,855
115,250
16,679
15,889
67,320
78,706
15,059
13,486
60,808
141,092
26,009
7,284
74,480
182,135
28,779
7,971
86,421
164,993
29,444
16,642
86,374
156,792
27,415
8,582
86,374
148,340
11,185
55,613
51
316,441
122,751
18,209
27,099
33
399,775
160,917
27,652
60,297
33
429,223
206,051
34,462
64,792
33
428,412
231,214
33,093
33,146
33
427,026
235,563
36,188
7,411
33
411,426
23 February 2012
6

BPCL
Financials and Valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
Dividend
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV / EBITDA
EV / Sales
Price / Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (No. of Days)
Asset Turnover (x)
Leverage Ratio
Debt / Equity (x)
2008
41.9
77.6
357.0
4.0
34.9
2009
17.5
52.4
368.2
7.0
37.8
2010
45.2
85.1
391.2
14.0
21.5
2011
45.2
97.5
424.6
14.0
39.4
2012E
42.5
109.4
455.4
10.0
27.5
2013E
48.5
118.1
491.0
11.0
26.5
13.8
7.3
16.3
0.4
1.6
2.2
13.8
6.4
11.3
0.3
1.5
2.2
14.7
5.7
8.8
0.2
1.4
1.6
12.9
5.3
8.0
0.2
1.3
1.8
12.5
8.5
4.8
5.9
11.9
3.9
11.1
5.5
9.7
6.6
10.2
7.1
5
4.6
4
5.3
6
4.4
7
4.8
5
5.9
5
5.3
1.2
1.8
1.9
1.6
1.4
1.2
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest Paid
Direct Taxes Paid
Other operating items
(Inc)/Dec in Wkg. Capital
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Investments
CF from Inv. Activity
Issue of Shares
Net Inc / (Dec) in Debt
Interest paid
Dividends Paid
Other Fi. Activities
CF from Fin. Activity
Inc / ( Dec) in Cash
Cash (incl ST borrowings)
Closing Balance
E: MOSL Estimates
2008
28,867
12,921
6,980
-9,566
-4,080
-21,793
13,329
-33,450
-16,908
-50,262
0
14,105
-6,584
-5,285
99
2,334
-34,599
50,488
15,889
2009
11,431
12,617
23,878
-5,786
3,582
24,457
70,179
-44,851
-81,899
-128,166
0
22,157
-23,439
-2,398
4,537
856
-57,131
70,617
13,486
2010
28,499
14,446
11,247
-10,469
-3,658
-42,307
-2,242
-51,819
44,018
-7,801
2,350
28,080
-13,722
-3,506
-1,605
11,596
1,552
5,732
7,284
2011
28,632
18,914
12,468
-12,475
-13,028
13,489
48,001
-43,057
38,532
-4,525
0
4,137
-13,967
-6,449
3,278
-13,001
30,475
-22,504
7,971
2012E
24,342
24,209
18,575
-7,757
0
40,317
99,686
-21,731
-32,737
-54,468
0
-13,741
-18,575
-4,230
0
-36,546
8,671
7,971
16,642
(INR Million)
2013E
26,709
25,190
15,772
-7,949
0
17,675
77,397
-30,325
-5,000
-35,325
0
-29,707
-15,772
-4,653
0
-50,132
-8,060
16,642
8,582
23 February 2012
7

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3. Broking relationship with company covered
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BPCL
No
No
No
No
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