Q4 EPS surge driven by inventory gain: Standalone Q4FY21 recurring profit stood at Rs48.8bn vs loss of Rs877mn in Q4FY20 driven by 1) crude and product inventory gain of Rs36.4bn vs loss of Rs 49bn in Q4FY20; 2) 17% YoY fall in interest cost (debt is down 37% YoY but up 7% QoQ to Rs263bn in end-Mar’21); and 3) 44% YoY rise in other income due to forex gain vs loss in Q4FY20.
Reported GRM at $6.64/bbl was up 8.9x YoY while core GRM at $2.46/bbl was down 67% YoY. Net marketing margin was down 61% YoY to Rs1.2/l. Excluding inventory gain/loss, Q4 standalone EPS is down 41% YoY. Consolidated recurring Q4 profit stood at Rs 58bn vs loss of Rs 3.6bn in Q4FY20; share of profit from JV/associates is up 66% YoY. FY21 standalone and consolidated recurring EPS were up 4.2x and 3.9x YoY.
Auto fuel marketing margin weak; need hikes to boost it: Auto fuel net marketing margin, which was up 37% YoY at Rs3.05/l in FY21, is weak at Rs1.28/l on 26-May’21 and just Rs0.49/l in FY22-TD vs our FY22 estimate of Rs2.5/l despite auto fuel price hikes of Rs3.04-3.59/l in the last three weeks. Net margin is estimated at Rs1.48/l on 1-Jun’21 and Rs1.07/l on 16-Jun’21 at latest prices. Price hike or excise duty cut (not passed on) of Rs1.2-1.7/l is needed to boost net margin to Rs2.5/l.
GRM weak in FY22-TD; diesel cracks recovery key to GRM rise: We estimate BPCL’s Q1FY22-TD GRM at $0.4/bbl vs our FY22 estimate of US$3.5/bbl. Diesel cracks, which are at $5.25/bbl in FY22-TD, need to rise to average over ~ $11/bbl for BPCL’s FY22E GRM to be at $3.5/bbl. Gradual recovery in global demand as vaccines are rolled out may help diesel cracks and GRM recover.
BPCL is our preferred pick among OMCs: We keep our FY22E EPS and our target price of Rs544 (15% upside) unchanged; it assumes 56% of holding realises Rs612 (8x FY22E EV/EBITDA) in successful bidder’s open offer and Rs459 (6x FY22E EV/EBITDA) is realised on balance. BPCL is a play on privatisation and privatisation going through at a similar valuation as estimated by us is key to our positive stance. Among OMCs, we prefer BPCL as we are more confident of gains from privatisation than auto fuel marketing margin and GRM recovering to level of our estimates, which is more crucial to stock performance of peers than of BPCL.