Q2 Results: Bharat Petroleum’s Profit Nearly Halves As Refining Margin Falls

Bharat Petroleum Corporation Ltd.'s profit in the July-September period fell as lower inventory gains coupled with a weaker rupee hurt the state-run refiner.

Net profit of the company fell 46.9 percent over the previous quarter to Rs 1,218.7 crore in the three months to September, according to its stock exchange filing. Analyst estimates compiled by BloombergQuint had pegged profit at Rs 1,796 crore.

• Revenue rose 0.9 percent to Rs 72,345.8 crore.
• Operating profit fell 37.6 percent to Rs 2,419.5 crore.
• Operating margin stood at 3.3 percent from 5.4 percent earlier.

BPCL's gross refining margin—the amount it earns for converting a barrel of crude to fuel—fell to $5.6 from $7.5 in the previous quarter. The decline in refining margin was also due to lower inventory gains.

Inventory gain or loss is the difference between the price at which a company buys crude oil and the price at which fuel is sold. Bharat Petroleum's inventory gains in July-September were lower than the last quarter when it had jumped sixfold. That's because price of crude oil averaged only 1 percent higher than last quarter and a weaker rupee led to foreign exchange losses.

The stock closed 0.52 percent higher ahead of the results announcement. It underperformed the benchmark in the July-September period when it rose 0.23 percent compared to the S&P BSE Oil Index that gained 8.76 percent.

Here's what the brokerages have to say about Bharat Petroleum:

Motilal Oswal

• Maintains ‘Buy' with a target price of Rs 397 apiece.
• Adjusted Ebitda below estimates due to lower gross refining margin and higher operating expenditure.
• Core gross refining margin was lower at both Kochi and Mumbai refineries.
• Kochi expansion in the next few quarters to expand gross refining margin by $2 a barrel.

SBICAP Securities

• Maintains ‘Buy' with a target price of Rs 396 apiece.
• Refining segment: Weak core gross refining margin partly offset by higher inventory gain.
• Marketing segment: Core margin in line with estimates.
• Oil marketing companies' risk-reward favourable; attractive valuations.

Deutsche Bank Research

• Maintains ‘Hold' but cuts target price to Rs 340 from Rs 360.
• Ebitda below estimates due to forex loss, higher interest expenses and lower other income.
• Overhang of declining auto fuel margin to continues.

Citi

• Maintains ‘Sell' with a target price of Rs 260 apiece.
• Expects a weaker third quarter.
• Overall marketing Ebitda slightly ahead, led by better margin.
• Third quarter refining performance needs to be watch out for.

Morgan Stanley

• Maintains ‘Underweight' with a target price of Rs 330 apiece.
• Second quarter core earnings below estimates.
• Refining margins surprisingly declined despite better product cracks.
• Stock is pricing in near-term challenges and impacts of government intervention.