Bpcl

Bharat Petroleum Corporation Limited RESEARCH EQUITY RESEARCH

July 1, 2009

Bharat Petroleum Corporation Limited

RESULTS REVIEW

Buy

Revision in fuel price offers reasons to cheer

Share Data Rs. 164.03 bn

For Q4’09, Bharat Petroleum Corporation Limited (BPCL) reported a

Rs. 453.70

pleasant turnaround in its bottom line. Despite a dip in net sales, the

BSE Sensex

14,645.47

adj. net profit surged to Rs. 36 bn from Rs. 0.5 bn in Q4’08. This turnaround

Reuters

BPCL.BO

Market Cap Price

is largely attributable to lower crude oil prices (USD 40-45 per barrel), which

Bloomberg

BPCL IN

Avg. Volume (52 Week)

0.16 mn

allowed Oil Marketing Companies (OMCs) such as BPCL to generate

Rs. 515.9 / 206.0

healthy profits from retail fuel sales. In addition, the Company's

361.54 mn

under-recoveries incurred during the year were fully compensated by oil

52-Week High/Low Shares Outstanding

bonds of Rs. 162.2 bn and upstream discounts of Rs. 75 bn.

Valuation Ratios (Consolidated) Year to 31 March EPS (Rs.) +/- (%)

Fuel price hike: On July 1, 2009, the GoI announced a price hike of

2010E 52.6 NM

2011E 54.5 3.7%

PER (x)

8.6x

8.3x

EV/ Sales (x)

0.3x

0.3x

of the sharp recovery in crude oil prices (to ~USD 70 per barrel). Although

EV/ EBITDA (x)

8.0x

7.7x

the price hikes attempted by the GoI will not fully cover the losses of fuel

Rs. 4 per litre and Rs. 2 per litre for petrol and diesel, respectively, in an attempt to decrease the impact of the losses suffered by OMCs as a result

retailers, who were losing around Rs 6 per litre on petrol and Rs 3.6 per litre

Shareholding Pattern (%) Promoters

64

FIIs

8

Institutions

22

Public & Others

6

on diesel, it will substantially reduce the under-recovery burden of OMCs to manageable levels. LPG and kerosene prices remain intact; under-recoveries remain a cause for concern: The mounting under-recoveries on the sale of domestic LPG and PDS kerosene continue to remain a cause for concern for the OMCs. At the current level of crude oil prices (~USD 70 per barrel) the

Relative Performance

under-recoveries on LPG and PDS kerosene stands around Rs. 93 per 600

cylinder and Rs. 15.3 per litre, respectively. BPCL stands to lose heavily

500

because of the increasing under-recoveries on domestic LPG, as it is one of

400

the largest LPG providers in India.

300

BPCL

Jun-09

Apr-09

Rebased BSE Index

May-09

Mar-09

Jan-09

Feb-09

Dec-08

Oct-08

Nov-08

Sep-08

Aug-08

Quarterly Data

Aug-08

Key Figures - standalone

100

Jul-08

200

Q4'08

Q3'09

Q4'09

YoY%

QoQ%

FY08

FY09

YoY%

(Figures in Rs. mn, except per share data) Net Sales EBITDA Adj. Net Profit

323,605 319,080 262,398 5,015 15,445 39,820 522 7,998 35,998

(18.9%) (17.8%) 1,105,468 1,352,377 22.3% N.M 157.8% 28,472 27,507 (3.4%) N.M 350.1% 15,043 7,458 (50.4%)

Margins(%) EBITDA NPM

1.5% 0.2%

Per Share Data (Rs.) Normalised EPS 10.5

4.8% 2.5%

22.12

15.2% 13.7%

99.29

2.6% 1.4%

N.M

Please see the end of the report for disclaimer and disclosures.

N.M

41.61

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2.0% 0.6%

20.62 (50.4%)

Bharat Petroleum Corporation Limited RESEARCH EQUITY RESEARCH

July 1, 2009 Valuation With crude oil prices hovering at around USD 70 per barrel levels, we expect the under-recoveries for PDS kerosene and domestic LPG to escalate further. However, the recent price hike in petrol and diesel prices should provide some respite to the Company. At its current market price (CMP) of Rs. 453.7, the stock trades at a forward P/E of 8.6x and 8.3x for FY10E and FY11E, respectively. We have revised our estimates to consider the recent developments in the sector. Based on our valuation, we have arrived at a target fair value of Rs. 526, which provides an upside potential of 15.9% from the CMP. Thus, we upgrade our rating for the stock to Buy.

Result Highlights and Outlook Decline in net sales Despite an increase in net production, net sales declined 18.9% yoy to Rs. Market sales volume increase by 1.7% yoy to 7.09 MMT in Q4’09

262.4 bn, primarily due to lower fuel price realisation. However, the GoI has introduced a fuel price hike on July 1, 2009, which should positively affect the Company’s top-line. The market sales volume increased 1.7% yoy to 7.09 MMT (on a standalone basis); however, the crude throughput declined by 2.6% yoy to 4.87 MMT in Q4’09.

7.5

Physical Performance – Standalone

7.0

MMT

6.5 6.0

6.97

6.97

6.96

Q4'08

Q1'09

Q2'09

7.09 6.84

6.71 6.3

6.3

Q1'08

Q2'08

5.5 5.0 4.5 4.0 Q3'08

Market sales

Q3'09

Crude Throughput

Please see the end of the report for disclaimer and disclosures.

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Q4'09

Bharat Petroleum Corporation Limited RESEARCH EQUITY RESEARCH

July 1, 2009 Improved EBITDA margins For the fourth quarter of 2009, EBITDA stood at Rs. 39.8 bn in comparison to Rs. 5 bn in Q4’08 and Rs. 15.5 bn in Q3’09. The EBITDA margin improved substantially, up 13.7 pts yoy to 15.2%. The improvement was mainly due to the weak crude oil prices that were hovering at around USD 40-45 per barrel during the quarter.

GRMs for FY09 stood at USD 4.48 and 6.27 a barrel for the Mumbai and Kochi refineries

For FY09, BPCL’s Gross Refining Margins (GRM) stood at USD 4.48 per barrel (USD 4.6 per barrel in FY08) for Mumbai refinery and USD 6.27 per barrel (USD 7.18 per barrel in FY07) for Kochi refinery. Adj. net profit for the quarter stood at Rs. 36 bn, compared with Rs. 0.5 bn for Q408.

Key Figures Year to March FY07 FY08 (Figures in Rs. mn, except per share data) Net Sales EBITDA Adj. Net Profit Margins(%) EBITDA NPM

FY09

FY10E

FY11E CAGR (%) (FY09-11E)

984,192 1,112,431 1,365,571 1,159,745 1,212,166 45,196 37,037 33,648 46,883 48,766 22,724 15,332 6,338 19,017 19,711

4.6% 2.3%

3.3% 1.4%

2.5% 0.5%

4.0% 1.6%

4.0% 1.6%

Per Share Data (Rs.) 62.8 Normalised EPS PER (x) 7.2x

42.4 10.7x

17.5 25.9x

52.6 8.6x

54.5 8.3x

Please see the end of the report for disclaimer and disclosures.

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(5.8%) 20.4% 76.4%

76.4%

Bharat Petroleum Corporation Limited RESEARCH EQUITY RESEARCH

July 1, 2009

Disclaimer This report is not for public distribution and is only for private circulation and use. The Report should not be reproduced or redistributed to any other person or person(s) in any form. No action is solicited on the basis of the contents of this report. This material is for the general information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be considered as an offer to sell or the solicitation of an offer to buy any stock or derivative in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Indiabulls Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. You are advised to independently evaluate the investments and strategies discussed herein and also seek the advice of your financial adviser. Past performance is not a guide for future performance. The value of, and income from investments may vary because of changes in the macro and micro economic conditions. Past performance is not necessarily a guide to future performance. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Any opinions expressed here in reflect judgments at this date and are subject to change without notice. Indiabulls Securities Limited (ISL) and any/all of its group companies or directors or employees reserves its right to suspend the publication of this Report and are not under any obligation to tell you when opinions or information in this report change. In addition, ISL has no obligation to continue to publish reports on all the stocks currently under its coverage or to notify you in the event it terminates its coverage. Neither Indiabulls Securities Limited nor any of its affiliates, associates, directors or employees shall in any way be responsible for any loss or damage that may arise to any person from any error in the information contained in this report. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject stock and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Indiabulls Securities Limited prior written consent. The information given herein should be treated as only factor, while making investment decision. The report does not provide individually tailor-made investment advice. Indiabulls Securities Limited recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. Indiabulls Securities Limited shall not be responsible for any transaction conducted based on the information given in this report, which is in violation of rules and regulations of National Stock Exchange or Bombay Stock Exchange.

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