Neutral BPCL; target of Rs 390: Motilal Oswal

Motilal Oswal's research report on BPCL

BPCL posted GRM of USD12.6/bbl in 1QFY24, below our estimate of USD16.5/bbl, while implied marketing margin at INR9.3/lit came in line with our estimate. Refining throughput stood at 10.4mmt (vs. 10.6mmt in 4QFY23), with the share of high sulphur crude processed increasing to 76% in 1QFY24 (vs. 73% in 4QFY23). The management highlighted that GRM of the Mumbai refinery is relatively lower than that of other refineries since it cannot process more than 20% of Russian crude in its crude basket.  Singapore GRM has improved to USD5.7/bbl in 2QFY24 TD from USD4/bbl in 1QFY24, which may lead to improvement in refining performance in 2Q. However, a decline in Russian crude oil discounts may weigh negatively.  Marketing sales volume (excluding exports) came in at 12.8mmt in 1QFY24 (vs. 12.9mmt in 4QFY23). The company intends to add 1,000 retail outlets in FY24 and has already added 111 retail outlets in 1QFY24. OMCs are estimated to be generating healthy marketing margins of INR11.9/INR13 on petrol/diesel in 2QFY24 TD; however, margins may be affected by retail fuel price cuts in the wake of upcoming elections and/or a rise in crude oil prices due to quota management by OPEC+ nations. The next OPEC+ meeting is scheduled to be held on 3 rd Aug’23.

Outlook

There is no update on the divestment roadmap for BPCL now. The stock is trading at 1.3x FY24E P/BV, and we value it at 1.2x FY25E P/BV to arrive at our TP of INR390. Maintain Neutral.