Accumulate BPCL; target of Rs 655: Emkay

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Accumulate BPCL; target of Rs 655: Emkay

Emkay Global Financial Services is bullish on Bharat Petroleum Corporation (BPCL) and has recommended accumulate rating on the stock with a target of Rs 655 in its February 13, 2012 research report.

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Emkay Global Financial Services is bullish on Bharat Petroleum Corporation (BPCL) and has recommended accumulate rating on the stock with a target of Rs 655 in its February 13, 2012 research report.

"BPCL reported results which were above our estimates at Revenue and PAT Level, primarily due to additional cash compensation of Rs.150bn to OMC's from the government during the quarter. With this OMCs will account for Rs300bn of govt support during the quarter. Revenue for the quarter was at Rs.588bn, growth of 60.4% YoY, mainly on account of additional budgetary support of Rs.150bn for OMC's from the government. EBIDTA during the quarter was at Rs.37bn, as against Rs.7.5bn YoY. Inventory gain for the quarter stood at Rs3bn. However interest cost increased significantly by 88% YoY to Rs.5.1bn. During the quarter the company reported net profit of Rs.31.4bn, v/s Rs. 1.8bn YoY. Direct market sales grew by 8.6% YoY to 8.04mmt, while crude throughput grew 21.3%YoY at 6.13mmt. The company received upstream discount of Rs.35.7bn, in respect of crude Oil/LPG/SKO purchased from them has been accounted during the quarter. The company has received budgetary support of Rs.69.9bn from the GOI for the under-recovery on cooking fuel and auto fuel during the quarter."

"The gross under recovery for the quarter stood at Rs.76bn. For 9H FY12, company received upstream discount of Rs.86.2bn, 38% of the total share/under recovery. Considering the budgetary support from the government of Rs.105bn for 9M FY12 there is still net under recovery of Rs.36bn for the company. Moreover, there is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains a key overhang on the stock. During the quarter, interest cost has increased significantly by 88% YoY to Rs.5.1bn on account of increase in working capital loan resulting from higher under recoveries."

"Valuations for BPCL have moved in one year forward P/BV band of between 0.6x to 1.5x in the last five years with average P/BV of 1.4x. Currently the stock trades at 1.2x one year forward P/BV. After touching low of Rs460 in the January 2012, the stock has rallied on the back of strengthening Rupee and expectations of a fuel price hike post the state elections. For FY12E, total under recoveries are expected to be about Rs1,300bn."

"We expect OMCs to be reimbursed fully for the under recoveries, as their financial performance has been adversely affected from increase in interest cost on the back of burgeoning short term borrowings. In the current oil price scenario under recoveries are expected to remain above Rs1,000bn and we believe the only way forward for the government is to go for fuel price hikes. Although the pace of fuel price hike is uncertain going ahead, ultimately consumers would have to take the burden of higher energy prices. At CMP stock provides limited upside, we maintain Accumulate on the stock with revised target price of Rs.655 (at 1.3x P/bv) as against its five year average P/BV of 1.4x," says Emkay Global Financial Services research report. 

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