Bharat Petroleum Corporation Limited

RESEARCH
EQUITY RESEARCH July 1, 2009

RESULTS REVIEW Bharat Petroleum Corporation Limited Buy

Revision in fuel price offers reasons to cheer
Share Data
Market Cap Rs. 164.03 bn
For Q4’09, Bharat Petroleum Corporation Limited (BPCL) reported a
Price Rs. 453.70 pleasant turnaround in its bottom line. Despite a dip in net sales, the
BSE Sensex 14,645.47 adj. net profit surged to Rs. 36 bn from Rs. 0.5 bn in Q4’08. This turnaround
Reuters BPCL.BO
is largely attributable to lower crude oil prices (USD 40-45 per barrel), which
Bloomberg BPCL IN
Avg. Volume (52 Week) 0.16 mn allowed Oil Marketing Companies (OMCs) such as BPCL to generate
52-Week High/Low Rs. 515.9 / 206.0 healthy profits from retail fuel sales. In addition, the Company's
Shares Outstanding 361.54 mn under-recoveries incurred during the year were fully compensated by oil
bonds of Rs. 162.2 bn and upstream discounts of Rs. 75 bn.
Valuation Ratios (Consolidated)
Year to 31 March 2010E 2011E Fuel price hike: On July 1, 2009, the GoI announced a price hike of
EPS (Rs.) 52.6 54.5 Rs. 4 per litre and Rs. 2 per litre for petrol and diesel, respectively, in an
+/- (%) NM 3.7%
attempt to decrease the impact of the losses suffered by OMCs as a result
PER (x) 8.6x 8.3x
EV/ Sales (x) 0.3x 0.3x of the sharp recovery in crude oil prices (to ~USD 70 per barrel). Although
EV/ EBITDA (x) 8.0x 7.7x the price hikes attempted by the GoI will not fully cover the losses of fuel
retailers, who were losing around Rs 6 per litre on petrol and Rs 3.6 per litre
Shareholding Pattern (%)
Promoters 64 on diesel, it will substantially reduce the under-recovery burden of OMCs to
FIIs 8 manageable levels.
Institutions 22
LPG and kerosene prices remain intact; under-recoveries remain a
Public & Others 6
cause for concern: The mounting under-recoveries on the sale of domestic
LPG and PDS kerosene continue to remain a cause for concern for the

Relative Performance
OMCs. At the current level of crude oil prices (~USD 70 per barrel) the
under-recoveries on LPG and PDS kerosene stands around Rs. 93 per
600 cylinder and Rs. 15.3 per litre, respectively. BPCL stands to lose heavily
500
because of the increasing under-recoveries on domestic LPG, as it is one of
400
300
the largest LPG providers in India.
200
Key Figures - standalone
100 Quarterly Data Q4'08 Q3'09 Q4'09 YoY% QoQ% FY08 FY09 YoY%
May-09
Aug-08
Aug-08

Nov-08

Apr-09
Jul-08

Sep-08
Oct-08

Dec-08
Jan-09
Feb-09
Mar-09

Jun-09

(Figures in Rs. mn, except per share data)

Net Sales 323,605 319,080 262,398 (18.9%) (17.8%) 1,105,468 1,352,377 22.3%
BPCL Rebased BSE Index EBITDA 5,015 15,445 39,820 N.M 157.8% 28,472 27,507 (3.4%)
Adj. Net Profit 522 7,998 35,998 N.M 350.1% 15,043 7,458 (50.4%)

Margins(%)

EBITDA 1.5% 4.8% 15.2% 2.6% 2.0%

NPM 0.2% 2.5% 13.7% 1.4% 0.6%

Per Share Data (Rs.)

Normalised EPS 10.5 22.12 99.29 N.M N.M 41.61 20.62 (50.4%)

Please see the end of the report for disclaimer and disclosures. -1-
 Bharat Petroleum Corporation Limited
RESEARCH
EQUITY RESEARCH July 1, 2009

Valuation

With crude oil prices hovering at around USD 70 per barrel levels, we
expect the under-recoveries for PDS kerosene and domestic LPG to
escalate further. However, the recent price hike in petrol and diesel prices
should provide some respite to the Company.

At its current market price (CMP) of Rs. 453.7, the stock trades at a forward
P/E of 8.6x and 8.3x for FY10E and FY11E, respectively. We have revised
our estimates to consider the recent developments in the sector. Based on
our valuation, we have arrived at a target fair value of Rs. 526, which
provides an upside potential of 15.9% from the CMP. Thus, we upgrade our
rating for the stock to Buy.

Result Highlights and Outlook

Decline in net sales

Market sales volume increase by
1.7% yoy to 7.09 MMT in Q4’09
Despite an increase in net production, net sales declined 18.9% yoy to Rs.
262.4 bn, primarily due to lower fuel price realisation. However, the GoI has
introduced a fuel price hike on July 1, 2009, which should positively affect
the Company’s top-line. The market sales volume increased 1.7% yoy to
7.09 MMT (on a standalone basis); however, the crude throughput declined
by 2.6% yoy to 4.87 MMT in Q4’09.

7.5 Physical Performance – Standalone

7.0 7.09
6.97 6.97 6.96
6.84
6.5 6.71

6.3 6.3
6.0
MMT

5.5

5.0

4.5

4.0
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09

Market sales Crude Throughput

Please see the end of the report for disclaimer and disclosures. -2-
 Bharat Petroleum Corporation Limited
RESEARCH
EQUITY RESEARCH July 1, 2009

Improved EBITDA margins

For the fourth quarter of 2009, EBITDA stood at Rs. 39.8 bn in comparison
to Rs. 5 bn in Q4’08 and Rs. 15.5 bn in Q3’09. The EBITDA margin
improved substantially, up 13.7 pts yoy to 15.2%. The improvement was
mainly due to the weak crude oil prices that were hovering at around USD
40-45 per barrel during the quarter.

GRMs for FY09 stood at USD For FY09, BPCL’s Gross Refining Margins (GRM) stood at USD 4.48 per
4.48 and 6.27 a barrel for the barrel (USD 4.6 per barrel in FY08) for Mumbai refinery and USD 6.27 per
Mumbai and Kochi refineries barrel (USD 7.18 per barrel in FY07) for Kochi refinery.

Adj. net profit for the quarter stood at Rs. 36 bn, compared with Rs. 0.5 bn
for Q408.

Key Figures
Year to March FY07 FY08 FY09 FY10E FY11E CAGR (%)
(Figures in Rs. mn, except per share data) (FY09-11E)

Net Sales 984,192 1,112,431 1,365,571 1,159,745 1,212,166 (5.8%)

EBITDA 45,196 37,037 33,648 46,883 48,766 20.4%
Adj. Net Profit 22,724 15,332 6,338 19,017 19,711 76.4%

Margins(%)
EBITDA 4.6% 3.3% 2.5% 4.0% 4.0%
NPM 2.3% 1.4% 0.5% 1.6% 1.6%

Per Share Data (Rs.)

Normalised EPS 62.8 42.4 17.5 52.6 54.5 76.4%
PER (x) 7.2x 10.7x 25.9x 8.6x 8.3x

Please see the end of the report for disclaimer and disclosures. -3-
 Bharat Petroleum Corporation Limited
RESEARCH
EQUITY RESEARCH July 1, 2009

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