Q4 EPS surge driven by inventory gain: Standalone Q4FY21 recurring profit stood at Rs 48.8billion vs loss of Rs 877million in Q4FY20 driven by 1) crude and product inventory gain of Rs 36.4billion vs loss of Rs 49billion in Q4FY20; 2) 17% YoY fall in interest cost (debt is down 37% YoY but up 7% QoQ to Rs 263billion 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 Rs 1.2/l. Excluding inventory gain/loss, Q4 standalone EPS is down 41% YoY. Consolidated recurring Q4 profit stood at Rs 58billion vs loss of Rs 3.6billion 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 Rs 3.05/l in FY21, is weak at Rs 1.28/l on 26-May’21 and just Rs 0.49/l in FY22-TD vs our FY22 estimate of Rs 2.5/l despite auto fuel price hikes of Rs 3.04-3.59/l in the last three weeks. Net margin is estimated at Rs 1.48/l on 1-Jun’21 and Rs 1.07/l on 16-Jun’21 at latest prices. Price hike or excise duty cut (not passed on) of Rs 1.2-1.7/l is needed to boost net margin to Rs 2.5/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 $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 Rs 544 (15% upside) unchanged; it assumes 56% of holding realises Rs 612 (8x FY22E EV/EBITDA) in successful bidder’s open offer and Rs 459 (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.