We expected 2Q to be a difficult quarters for refiners with inventory losses, which are difficult to estimate. While peer IOC’s result was on expected lines, BPCL surprised us with much better numbers. Reported Ebitda of Rs 1,280 crore (our estimate: Rs 670 crore) and PAT of Rs 1,020 crore (our estimate: Rs 190 crore) were sharply ahead of our estimates. The key reasons for the beat were: 1) higher refining margins of $3.9/bbl (our expectations of $2.7); and 2) relatively lower marketing inventory losses of Rs 740 crore (our expectation of R900 crore). However, compared to Bloomberg consensus, while reported Ebitda was 23% lower, PAT was in line. BPCL’s reported 1H standalone EPS of Rs 46.9/share is nearly 60% of Bloomberg consensus FY16F estimate. We expect the street to revise its numbers upward.
After a relatively weaker 2Q ($6.2/bbl), Singapore complex margins have been moving up, and are averaging $7.2/bbl in 3Q. Also, Indian refiners will likely benefit from the recent increase in discounts on crude being offered by OPEC countries to Asian refiners. Higher discounts in 4QFY15 and 1QFY16 were, in our view, one key reason for OMCs reporting very strong refining margins. These discounts had narrowed in 2Q, but have now increased from November. Despite recent excise duty hikes, the realised marketing margins on both diesel and petrol are at reasonable levels.
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