Bharat Petroleum Corporation (BPCL), one of the largest public sector oil marketing companies reported a beat on our estimates, driven by a better-than-expected performance in the Marketing segment (volumes were down 14% QoQ). Refining throughput in 1QFY22 was aligned with demand moderation due to the second COVID wave (throughput was down 18% QoQ).
With the easing of the lockdowns in July, demand for petroleum products such as MS/LPG has surpassed 2019 levels (+5%/+10%), while HSD demand remains subdued (-8%).
The management stated that an increase in personal mobility due to COVID continues to drive higher demand for MS (thus aiding cracks). Demand for HSD is also seeing strong recovery in the US, coupled with the re-opening of the Chinese and Indian economies. Although, high levels of HSD inventory globally have resulted in suppressed cracks.
Commenting on the result review, Motilal Oswal Institutional Equities said, "SG GRM averaged higher MoM at USD2.9/bbl in July (v/s USD2/bbl in 1QFY22), the highest ever since the COVID outbreak in Feb'20. Recovery is entirely driven by higher demand for gasoline (margins at USD10.1; +USD3MoM), while ATF/gasoil margins remain the same MoM at USD4.3/USD4.7. SG GRM is higher at around USD3.6/bbl in Aug (to date).
With the total phasing out of the COVID lockdowns and closure of refinery complexes (est ~3mnbopd over the next 2-3 years), the refining margin would return to its long-term average (of USD5-6/bbl).
BPCL is still working with the Government of India to protect its interest in IGL and PLNG and avoid an open offer in these subsidiaries. A virtual data room has been opened up since Apr’21, and the next two steps consist of a discussion with the senior management and visiting physical assets. We value BPCL at 2.3x Sep’23E P/BV; we reiterate Buy, with TP of Rs 615."
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