Buy BPCL; target of Rs 782: Motilal Oswal

“Bharat Petroleum Corporation (BPCL) reported EBITDA of INR50.6b for 4QFY12, largely in line with our estimate of INR49b. Losses on petrol (~INR5.7b) and lower GRM at USD4.2/bbl (v/s our estimate of USD4.5/bbl) were compensated by forex gain of INR8.3b (netted from other expenditure). PAT was INR39.6b (v/s our estimate of INR36.6b), led by higher other income of INR4.4b (v/s our estimate of INR2.4b). Comparable PAT was INR9.4b in 4QFY11 and INR31.4b in 3QFY12.”

“At INR7.8b, consolidated PAT for FY12 was lower than standalone PAT of INR13.1b, led by losses in Bina Refinery (INR11b) and write-off in domestic E&P business (EBIT loss of INR1.9b). Bina Refinery capitalization was complete in June 2011. However, throughput remained low in FY12 (2mmt v/s capacity of 6mmtpa), resulting in non-commensurate revenue as against depreciation and interest cost. Led by losses in Bina Refinery and E&P business, the implied tax rate at consolidated level stood at 46.8% (v/s standalone tax rate of 30%). As petrol is a decontrolled product, the government did not compensate for losses of ~INR11.4b in FY12 and INR5.7b in 4QFY12. However, in FY12, BPCL received 100% compensation towards controlled products (diesel, kerosene and LPG), as GoI shared 60.3% and upstream shared 39.7%.”

“E&P upside potential differentiates BPCL from HPCL and IOC. BPCL's E&P portfolio has turned out to be a huge success, with multiple discoveries in its Brazil and Mozambique acreage. We value BPCL's E&P portfolio at INR160/share and believe there could be significant upside, as more clarity on the reserve size at its Mozambique and Brazil discoveries emerges. The stock trades at 15.9x FY13E EPS of INR45.2 and 1.5x FY13E BV. Adjusted for investments and E&P value, BPCL trades at 0.7x FY12E BV. BPCL is our top pick among OMCs. Maintain Buy,” says Motilal Oswal research report.  

Non-Institutions holding more than 90% in Indian cos

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