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  • Stock recommendation: BPCL — Reduce — Target price Rs 375

    Publish date: August 9, 2018

    Results update: Weak refining performance

    Government-run Bharat Petroleum Corporation Limited’s (BPCL) normalized EBITDA — an indicator of a company’s future earning capacity — was well below our estimates due to low volume of processed crude and weak refining margins.

    Key highlights

    • BPCL’s normalized EBITDA declined 42% (QoQ) due to weak refining margin and marketing margin.
    • Refining margin witnessed an alarming dip by $4.2 per barrel.
    • Marketing margin shrunk by 15% (QoQ) at Rs 51.3 billion as against Rs 59 billion in the previous quarter.
    • The company’s net income grew threefold, while the reported EBITDA was above expectations, mainly due to adventitious gains across refining and marketing segments.
    • Domestic volumes grew by 9.3% (YoY), but exports remained subdued.

    Valuation & outlook

    We remain cautious about BPCL due to low refining margins brought about by high global crude prices and discounts provided by the Middle East producers. The company’s marketing margin is unlikely to increase either due to the possibility of cooking fuel subsidy-sharing program in India.

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