BPCL likely to report drop in Q1 net profit sequentially on refining, fuel margin woes

BPCL's consolidated net profit for the June quarter is expected to be Rs 4,283 crore, down 60% sequentially and up 1.4% year-on-year, according to seven brokerage estimates polled by Moneycontrol.

Bharat Petroleum Corp Ltd is likely to report a sequential drop in net profit and flat results year-on-year due to a sharp decline in gross refining margins, weakness in auto-fuel marketing margins, and crude inventory loss.

BPCL's consolidated net profit for the June quarter is expected to be Rs 4,283 crore, down 60% sequentially and up 1.4% year-on-year, according to seven brokerage estimates polled by Moneycontrol.

Consolidated revenue is projected at Rs 1.2 lakh crore, up 6.6% QoQ and 3.3% YoY. EBITDA is likely to be Rs 7,551 crore, down 52% QoQ and 18% YoY.

What factors are driving the earnings?

Weaker EBITDA: Jefferies reported that BPCL's EBITDA decline likely to be influenced by weaker refining conditions and reduced discounts on Russian crude, potentially narrowing the premium compared to regional benchmarks. They also expect marketing margins to narrow in the upcoming quarter.

Brent Crude impact: During the June quarter, BPCL's stock rose only 1%, significantly underperforming the Sensex and Nifty, which rose 7% each.

The recent 12% increase in Brent crude oil prices to over $87/bbl in the last month is expected to adversely affect BPCL's marketing segment profitability. Analysts also foresee refining margins moderating due to reduced global demand for transportation fuels and higher product supplies, impacting the contribution from the refining segment.

Marketing margins: Analysts project lower gross marketing margins for petrol and diesel in first quarter of FY25 at Rs 2.5/ltr and Rs0.1/ltr respectively, down from Rs5.6/ltr and Rs0.7/ltr in Q4FY24. This is expected to result in gross margins of Rs29400/30800 crore for FY25/26, compared to Rs37600 crore in FY24.

Analysts anticipate normal gross marketing margins for oil marketing companies going forward, projecting blended margins of Rs4.6/ltr for FY25/26E for BPCL. A change of Rs0.5/ltr in these margins could impact BPCL's FY25/26E EPS by 22.5/20.8% or Rs11.8/12.3 per share, analysts added.

Weak GRMs: Kotak Institutional Equities expects BPCL to report a GRM of $6.5/bbl (down from $12.5/bbl QoQ), with crude throughput flat at 10.5 mmt. Auto fuel over-recovery is projected at Rs 400 crore (down from Rs 1400 crore QoQ), and negligible adventitious gains (compared to a Rs 100 crore loss in Q4 FY24).

Kotak Institutional Equities noted that a sharp QoQ decline in key product cracks (SG complex: $3.5/bbl, $7.3/bbl QoQ) and lower Russian discounts are expected to further moderate GRMs for OMCs. Additionally, the full impact of the Rs 2/liter price cut in March and higher Brent prices resulted in weaker marketing margins on auto fuels QoQ.

Other impacts: In Q1 FY25, diesel crack spreads declined 29% QoQ to $16.3/bbl, while gasoline cracks fell 33 percent QoQ to $8.8/bbl. These declines were primarily due to moderated demand and increased refined product supplies, analysts said.

Motilal Oswal predicts a refinery throughput of 10.3 mmt and a reported GRM of $8/bbl, with a blended gross marketing margin of Rs4/litre. Marketing sales volumes (excluding exports) are estimated at 13.3 mmt (up 4% YoY and up 1% QoQ) for the quarter. Updates on the Bina refinery expansion and new petrochemicals plant construction are also anticipated.

What to look out for in the quarterly show?

Investors can expect commentary related to capital expenditures during the Q1 earnings. BPCL plans to invest Rs1.7 lakh crore from FY25 to FY29, translating to annual capex ranging from Rs16000-20000 crore over the next five years. This marks a significant increase from Rs11700 crore spent in FY24.

The intensified capex, amidst subdued refining and marketing profitability, may strain the balance sheet. Analysts anticipate consolidated net debt to stay elevated at Rs28400/32200 crore in FY25/26E, reflecting the impact of this high capex guidance.