Bharat Petroleum rating – Buy: Q4FY21 results were well ahead of expectations

Retail costs of gasoline and diesel have elevated by Rs 3-4/lt because the elections ended. On the present crude value, our calculations recommend additional retail value hikes of Rs 1-5/lt in diesel and gasoline are wanted to revive regular margins.

BPCL reported in-line core Ebitda, with stock features driving a big beat to JEFe. Advertising quantity progress was sooner than trade progress. Advertising profitability is more likely to be restored as retail value hikes proceed. Borrowings dropped sharply on proceeds from Numaligarh stake sale and treasury inventory sale. Dividend of Rs 58/share and low capex pleasantly stunned. We reduce FY22/23e Ebitda 8/5%; privatisation is vital to additional upside.

Outcomes effectively forward of expectations: Reported Ebitda was 92% forward pushed by stock features. Reported PAT was considerably forward of JEFe aided by (i) distinctive objects – Rs 94-bn achieve on sale of stake in Numaligarh refinery offset by Rs 20-bn impairment in upstream enterprise and Rs 4-bn ESOP associated expense; and (ii) deferred tax write-back of Rs 17 bn.

Core refining forward: Core GRM of $2.5 was forward of JEFe ($1.8). Stock achieve of $4.2 was a lot greater than JEFe ($2). Refinery throughput declined 17% y-o-y in FY21 however was flat y-o-y in Q4FY21.

Advertising aided by stock features: Advertising Ebitda was aided by stock features of Rs 18.3 bn. Advertising quantity was up +4.1% y-o-y in opposition to +2.5% for trade in Q4FY21. Gasoline and diesel market shares have been -10bps and +30bps y-o-y.

SGP GRM outlook combined: Trafigura, in its latest Jef U interplay, indicated it expects gasoline spreads to strengthen additional on greater than regular demand in the course of the US driving season in June-July. Naphtha also needs to stay sturdy on downstream demand. However the outlook on diesel is combined with continued restrictions in India and weak spot in world aviation gas demand.

Retail value revisions have some technique to go: Retail costs of gasoline and diesel have elevated by Rs 3-4/lt because the elections ended. On the present crude value, our calculations recommend additional retail value hikes of Rs 1-5/lt in diesel and gasoline are wanted to revive regular margins.

Borrowings sharply down y-o-y: Borrowings fell Rs 155 bn y-o-y in FY21 on the again of (i) Rs 57-bn discount in authorities receivables; (ii) Rs 80-bn internet influx from sale of stake in Numaligarh refinery; and (iii) Rs 55 bn from sale of treasury inventory. Borrowings will enhance to pay dividend (Rs 121 bn) and buy of Bina refinery stake (Rs 24 bn) in FY22e. Money & equivalents at Rs 80 bn and decrease capex depth within the run-up to privatisation ought to maintain borrowings in verify.

Treasury inventory and Numaligarh proceeds paid as dividend; privatisation is vital: Now we have reduce advertising and marketing volumes 9%/ 8% for FY22/23e to issue within the Covid-related restrictions. Now we have reduce FY22/23e Ebitda 8%/5% however EPS rises as the corporate shifts to a decrease tax regime. It introduced a dividend of Rs 58/share. Lack of pricing freedom in the course of the election clouds the outlook on BPCL’s privatisation, in our view. We desire HPCL over BPCL on beneficial valuation however preserve Purchase on BPCL with a barely greater PT of Rs 520 (from Rs 500) helped by a roll-over to FY23e.