Sharekhan's research report on Bharat Petroleum Corporation
Q3FY2023 standalone PAT of Rs. 1,960 crore was significantly above our estimate, led by a sharp beat in GRMs at $15.9/bbl, higher-than-expected volumes, and lower tax rate, partially offset by increased interest cost and lower other income. Derived gross marketing margin was positive at Rs. 1,516/tonne (versus negative Rs. 459/tonne in Q2FY2023) despite inventory/forex loss of Rs. 752 crore/Rs. 141 crore. Refinery throughput/marketing sales volume was up 6.5%/11.4% q-o-q to 9.4mmt/13mmt in Q3FY2023. Debt declined by 25% q-o-q to Rs. 40,256 crore in Q3FY2023. We believe the earnings downgrade cycle is largely over for OMCs and expect earnings to normalise over FY2024-FY2025, led by strength in GRM and likely normalised auto fuel marketing margins. Any spike in crude oil price is key risk to earnings recovery, especially given the inability of OMCs to hike petrol/diesel price in an inflationary environment.
We maintain Buy on BPCL with and a revised PT of Rs. 400, given attractive valuation of 8.1x/1.4x its FY2024E EPS/BV and FY2024E dividend yield of ~5%.
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