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Core GRM boosted by Kochi/Mumbai refineries; impressive EBITDA sans inventory loss
* BPCL reported EBITDA of INR783m in 3QFY19. However, excluding inventory loss of INR33.3b, core EBITDA stood at INR34.1b (2x YoY, +78% QoQ), exceeding our estimate of INR29.7b, primarily due to higher-than-expected core GRM. Forex gain stood at INR6.6b, as against a gain of INR840m in 3QFY18 and a loss of INR9.3b in 2QFY19. Effective tax rate in 3QFY19 was lower at 16% v/s Apr-Dec 18 average of 28%. PAT declined 77% YoY (-59% QoQ) to INR4.9b.
* Core GRM stood at USD6.0/bbl
(our estimate: USD3.0; 3QFY18: USD4.9; 2QFY19: USD3.3). Core GRM was high at both Kochi (USD6.03) and Mumbai (USD6.01) refineries. Refinery throughput was at 7.5mmt (+3% YoY, -2% QoQ).
* Domestic sales volume was flat YoY (+6% QoQ) at 10.7mm
t in 3QFY19. Implied marketing margin inclusive of inventory gain stood at INR2.9/liter (- 24% YoY, -42% QoQ). Net of inventory gain, the marketing margin stood at INR4.5/liter.
Valuation and view
* BPCL is expected to stabilize its Kochi expansion over the next few quarters, which should expand the Kochi refinery GRM by ~USD2/bbl.
* OMCs have seen a sharp correction in their stock prices due to high oil prices, INR depreciation and the government’s directive to absorb INR1/lit on pricing of auto fuels.
* For 9MFY19,standalone adj. EBIDTA was at INR72.3b (+1% YoY), while adj. PAT moderated by 24% to INR40b. We estimate FY19 standalone EPS of INR34.8.
* BPCL is trading at 8.1x FY20E conso EPS of INR41.6 and 7.4x FY20E EV/EBTIDA. BPCL has 10% stake in the prolific Offshore Area 1 in Mozambique. After almost a delay of 4-5 years, the final investment decision is likely to be concluded in 2019. Hence, we raise our PBV multiple from 1.5x to 1.6x. Valuing BPCL at 1.6x Dec’20E PBV, we reiterate Buy with a TP of INR398.
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