30 May 2013
4QFY13 Results Update | Sector: Oil & Gas
BPCL
BSE Sensex
20,148
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
6,104
BPCL IN
723.0
274/4.9
449/316
-13/7/-15
CMP: INR378
TP: INR485
Buy
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout* (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
14.6
1.6
8.2
2.9
12.2
1.5
7.4
2.2
10.6
1.4
6.5
2.5
2013 2014E 2015E
2,422
67
19
26.0
140.9
233
11.5
8.9
35.2
2,438
68
22
30.9
18.9
254
12.7
9.3
35.2
2,568
69
26
35.7
15.4
279
13.4
9.5
35.1
*Based on standalone
4QFY13 EBITDA lower than estimate:
BPCL reported EBITDA of INR65.5b for
4QFY13, lower than our est. of INR71.9b, led by (a) higher staff cost to the
tune of INR2.1b, (b) inventory loss of INR3.3b, and (c) under-recovery sharing
of INR2.5b v/s our estimate of nil. This was partially negated by (a) higher
GRM of USD6/bbl v/s our estimate of USD5.4/bbl, and (b) forex gain of INR0.7b.
FY13 PAT doubles:
PAT for 4QFY13 was INR48b against our estimate of INR51.5b,
INR39.6b in 4QFY12 and INR16.5b in 3QFY13. Full-year PAT doubled to INR26b.
FY13 subsidy sharing at 0.6% v/s expectation of nil:
While upstream companies
compensated BPCL INR168b in FY13, the government provided INR219b,
implying a marginal INR2.5b (0.6%) sharing for BPCL. This compensation helped
BPCL to report PAT of INR26b for FY13. For FY14, we model subsidy sharing as:
60% by government, 40% by upstream.
GRM at USD6/bbl in 4QFY13, shift to export parity difficult:
Reported GRM for
4QFY13 was USD6/bbl against USD4.2/bbl in 4QFY12 and USD4.8/bbl in 3QFY13.
Given the difficult GRM scenario and unviability of many domestic refineries
under export parity, we believe it will be difficult for the government to change
the petroleum pricing methodology from trade parity to export parity. Our
analysis indicates GRM impact of ~USD2/bbl for simple refiners.
Maintain Buy:
Our positive stance on the stock is driven by the ongoing diesel
reforms, which are likely to reduce gross under-recoveries by ~55% by FY15.
For OMCs, in the initial period of reforms, the stock performance will be
largely through re-rating, and the earnings benefit will be limited, as we
already assume nil subsidy sharing in FY14/FY15. The stock trades at 12.2x
FY14E EPS of INR31 and 0.7x FY14E BV, adjusted for investments. Maintain
Buy.
BPCL is our top pick among OMCs.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Kunal Gupta
(Kunal.Gupta@MotilalOswal.com); +91 22 3982 5445
Investors are advised to refer through disclosures made at the end of the Research Report.
1

BPCL
Key takeaways from the concall for BPCL
FY13 Financial Details of Key Subsidiaries
BORL (Bina Refinery)- Loss of INR2.5b
BPRL (E&P Business)- Loss of INR6b (exploratory wells written off)
Numaligarh Refinery - PAT of INR1.4b
Bina Refinery FY13 GRM at USD9.1/bbl
FY13 GRM's stood at USD9.1/bbl while 4QFY13 GRMs were at ~USD12/bbl
Opex - USD2.1/bbl; Impact of freight netback on product dispatches - USD2.3/
bbl and Fuel (coal) costs at USD1.8/bbl
Subsidy receivable from Govt at ~INR87b
Subsidy compensation of INR132b from Government till 9MFY13 has been
received and the 4QFY13 subsidy of INR86.7b is yet to be received.
Management expects the 4QFy13 subsidy to come by June-July 2013.
Oil bonds in the books stood at INR57b as on 31st March, 2013.
Upstream capex guidance at USD277m for FY14
Management guided for capex guidance of USD277m for BPRL, of which
~USD250m is for Mozambique and Brazil.
Wahoo (Brazil) reserve certification is likely by end 2013 or early 2014
Others key highlights
Expects a capex of INR50b in FY14
If implemented, export parity could impact BPCL's GRM by USD2-2.5/bbl
Opex for the year averaged ~USD1.5/bbl at both, Mumbai and Kochi Refinery
Gross debt at ~INR238b:
BPCL's standalone gross debt stood at ~INR238b as of
March 2013 v/s INR230b as of March 2012.
Govt compensation in 4QFY13 leads to over-recovery, 0.6% sharing for FY13
4QFY13 subsidy sharing: Of gross under-recovery of INR90b in 4QFY13, BPCL
received INR59.6b from upstream and INR86.7b from government, resulting in
net over-recoveries of INR56.7b. For FY13, BPCL shared INR2.5b (0.6%) of the total
under recoveries.
Model nil subsidy sharing for OMC's in FY13: We model nil subsidy sharing for
OMC's, upstream share at 40% and rest by Government. With high interest cost
and crude prices, we believe it would be difficult for OMCs to share any under-
recovery. However, with the recently announced diesel reforms, we expect the
situation to improve for OMC's in next 2 years.
BPCL shares 0.6% of the total under recoveries during FY13 (INR b)
1Q
Gross Under recovery
Less: Sharing
Upstream Sharing
Govt. subsidy
Net Under/(over)recov.
As a % of Gross
102.9
34.1
35.2
33.6
32.6
FY12
2Q
3Q
48.7
76.3
4Q
1Q
FY13
2Q
3Q
90.3
93.7
4Q
89.7
4QFY13 (%) FY08 FY09
YoY QoQ
(9.0)
FY10 FY11
FY12 FY13
98.5 116.3
(4.3) 180.0 237.7 101.3 179.6 326.4 389.9
36.3 69.6 129.6 168.4
52.7 94.2 196.7 219.0
12.4 15.8
0.1
2.5
12.2
8.8
0.0
0.6
Source: Company, MOSL
2
16.4 35.7 43.3
0.0 69.9 91.5
32.3 (29.4) (36.4)
66.3
nm
nm
36.6 36.2
0.0 72.4
79.6 (18.3)
68.5 (20.3)
36.0 59.6
59.9 86.7
(2.2) (56.7)
(2.3) (63.2)
37.6 65.5 59.8 75.6
(5.3) 44.8 85.9 162.2
55.8 2,515.1 34.4
0.0
0.0
30 May 2013

BPCL
4QFY13 Operational Highlights
GRM stood at USD6/bbl v/s USD4.2/bbl in 4QFY12 and USD4.8/bbl in 3QFY13.
Product inventory adventitious loss stood at INR3.3b (v/s gain of INR0.5b in 4QFY12
and gain of INR3.3b in 3QFY13).
Refinery throughput stood at 5.8mmt, down 3.2% YoY and up 4.7% QoQ.
Marketing volumes were up 4% YoY and 1% QoQ at 8.6mmt.
BPCL: 4QFY13 Operational Highlights
FY12
1Q
Product Sales (mmt)
Throughput (mmt)
Mumbai
Kochi
Total
Blended GRM (USD/bbl)
7.8
3.3
1.9
5.2
3.0
2Q
7.0
3.1
2.5
5.6
1.7
3Q
8.0
3.5
2.7
6.1
3.5
4Q
8.2
3.4
2.6
6.0
4.2
1Q
8.5
3.3
2.6
5.9
2.6
FY13
2Q
3Q
7.8
3.2
2.8
5.9
6.4
8.5
4Q
8.6
4QFY13 (%)
YoY
QoQ
4.0
1.1
(5.3)
20.3
4.7
25.5
MOSL
3.4
3.2 (6.7)
2.2
2.6
1.6
5.6
5.8 (3.2)
4.8
6.0
44.6
Source: Company,
Ad-hoc subsidy sharing resulting in volatile quarterly profits
BPCL: 4QFY13 GRM at USD6/bbl (USD/bbl)
We model OMC's sharing at nil in FY14/FY15 (INR b)
FY09
Fx Rate (INR/USD)
46.0
Brent (USD/bbl)
85
Product Sales (mmt)
83
Gross Under recoveries (INR b)
Petrol
52
Diesel
523
Kerosene
282
LPG
176
Total
1,033
Gross Under recoveries Sharing (INR b)
Government
713
Upstream
329
OMC’s
(9)
Total
1,033
Gross Under recoveries Sharing (%)
Government
69
Upstream
32
OMC’s
(1)
Total
100
30 May 2013
FY10
47.5
70
91
52
93
174
143
461
260
145
56
461
56
31
12
100
FY11
45.6
86
96
27
348
200
205
780
410
303
67
780
53
39
9
100
FY12
47.9
114
100
0
819
278
284
1,385
829
552
0
1,385
60
40
0
100
FY13
54.5
111
104
0
915
296
399
1,610
1,000
601
0
1,601
FY14E
54.5
105
104
0
381
275
367
1,022
613
409
0
1,022
FY15E
54.0
105
110
0
37
260
416
713
428
285
0
713
60
40
0
100
MOSL
3
62
60
38
40
0
0
100
100
Source: Company,

BPCL
Valuation and view
We model Brent oil price of USD105bbl (v/s USD110/bbl earlier) in FY14/FY15 in our
estimates. While, we model INR0.45/ltr diesel price hike per month in our estimate.
We expect OMCs to be fully compensated by upstream (40% share) and Government
(60% share) for the under-recoveries on controlled products.
Our positive stance on the stock is driven by the ongoing diesel reforms which is
likely to reduce the gross under recoveries by ~55% by FY15. For OMC's, in the
initial period of reforms, the stock performance will be largely through re-rating,
and the earnings benefit will be limited as we already assume nil subsidy sharing
in FY14/FY15.
Expect upside potential in BPCL's E&P business: We currently value BPCL's E&P
portfolio at INR151/sh and believe there could be a significant upside potential as
we near reserve certification/FID for Mozambique block and results from
exploratory drilling in Brazil.
Key events to watch (apart from subsidy sharing): (a) Bina refinery GRM
performance, and (b) E&P developments in Mozambique block.
The stock trades at 12.2x FY14E EPS of INR31 and adjusted for investments, trades
at 0.7x FY14E BV. BPCL is our top pick in OMCs. Maintain Buy.
BPCL trades at significantly below its historical average P/B
30 May 2013
4

BPCL
BPCL: an investment profile
Company description
A Fortune 500 company, BPCL has interests in oil refining
and marketing of petroleum products. It is the third
largest refining company in India with a capacity of
12mmtpa at its Mumbai facility and 9.5mmtpa at Kochi.
BPCL has majority stake (63%) in Numaligarh Refineries,
a 3mmtpa refinery in the north-east. BPCL has
investments in IGL (22.5%) and Petronet LNG (12.5%).
BPCL is a public sector firm in which the government of
India holds 54.93%.
Key investment risks
Delay in the diesel de-regulation and ad-hoc subsidy
sharing.
Non commensurate increase in the retail fuel prices
as oil price rises, leads to under recoveries for the
company and ad-hoc nature of subsidy sharing
impacts the profits.
Recent developments
Government announced Diesel reforms to cut under
recoveries. If executed in a timely manner this could
lead to a significant reduction in under recoveries
Key investment arguments
BPCL announced a gas discovery, Orca well in
Diesel reforms to lead to significant cut in under
Mozambique block. This discovery opens up a new
recoveries:
Recently announced diesel reforms (a)
gas accumulation area in the Mozambique block..
increasing diesel prices by INR 0.40-0.50/lt every
month and (b) Market pricing for bulk buyers; would
Valuation and view
lead to a significant cut in under recoveries (50%
The stock trades at 12.2x FY14E EPS of INR31 and
reduction in under recoveries in FY15 over FY13).
adjusted for investments, trades at 0.7x FY14E BV.
BPCL's profitability continues to be determined by
BPCL is our top pick in OMCs. Maintain
Buy.
quantum of under recoveries and sharing
Sector view
mechanism, rather than fundamentals.
Bina refinery commercial production ramp up is Global economic environment (particularly Europe) will
expected in coming quarters. BPCL has 49% stake in continue to weigh heavily on refining margins. While
the ~Rs114b Bina refinery, which will have a capacity economic outlook continues to remain uncertain, we
expect GRMs to remain range bound. However, the
of 6mmtpa.
BPCL's E&P portfolio is likely to add substantial value ceiling will be capped in the near term due to new
as it completes its appraisal program and gives out capacities coming online in FY13 and FY14. We expect
the demand-supply gap to correct only through refinery
the resource/reserve numbers.
closure of simple refiners and continuous pick-up in
global demand.
Target price and recommendation
Current
Price (INR)
378
Target
Price (INR)
485
Upside
(%)
28.3
Reco.
Buy
FY14
FY15
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
30.9
35.7
Consensus
Forecast
27.6
25.9
Variation
(%)
12.1
37.8
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
30 May 2013
55.8
16.6
10.4
17.2
Dec-12
55.8
16.9
10.1
17.2
Mar-12
55.8
18.8
8.0
17.5
5

BPCL
Financials and Valuation
30 May 2013
6

BPCL
N O T E S
30 May 2013
7

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BPCL
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