BPCL Share Price Up 4% Post Weak Q4; Citi Maintains 'Buy' Rating on PSU

Today, Bharat Petroleum Corporation (BPCL) share price rose by 4% even though the company's fourth-quarter earnings fell short of market expectations due to lower refining margins. This increase occurred as Citi maintained a bullish stance on the stock, despite the earnings not meeting estimates.

BPCL saw a 30% decline in its net profit for the March quarter due to reduced refining margins. The consolidated net profit for January-March 2024—the fourth quarter of the fiscal year—was ₹4,789.57 crore, compared to ₹6,870.47 crore in the corresponding period of the previous year. The company's turnover remained nearly unchanged at ₹1.32 lakh crore, closely matching the ₹1.34 lakh crore reported in January-March 2023.

Despite a shortfall in earnings attributed to refining margins, BPCL experienced a quarter-on-quarter improvement in EBITDA. Additionally, the company's board has approved a bonus issue in the proportion of 1:1, allowing investors to receive one additional share for every share they currently hold.

Citi has recommended a 'Buy' rating on BPCL shares with a target price of ₹760. Although the company's pre-tax profit was 20% lower than expected and net income decreased by 39% due to a ₹1,800 crore impairment of investments in a subsidiary, analysts pointed out that the full-year FY24 earnings per share (EPS) remained robust at ₹125.

Morgan Stanley reported that Indian fuel refiners have recorded strong quarterly earnings, signaling a structural shift toward greater profitability in FY24. This improvement is attributed to the returns on investments in refinery upgrades. Specifically, BPCL achieved notably higher margins, and HPCL successfully increased its market share in the fuel sector, according to the international brokerage.

The decline in net profit for BPCL in Q4 could be attributed to decreased gross marketing margins on petrol and diesel, which fell to an average of ₹8 and ₹3.4 per litre, respectively, during the quarter, as noted by Motilal Oswal. Additionally, a reduction in pump prices by ₹2 since March 15 likely further compressed retail margins. Given these factors, Motilal Oswal has assigned a 'Neutral' rating to BPCL.

BPCL reported that it achieved an average ethanol blending rate of 11.69% during FY24, with the highest quarterly blending reaching 12.15% in the fourth quarter. The company also expanded its retail network, adding 308 new petrol pumps to bring its total to 21,840. Additionally, BPCL commissioned 323 new CNG stations, increasing the total number of stations to 2,031.

“We've achieved record-breaking operational and financial performance across refining throughput, domestic market sales, and profitability. Our profit after tax soared to a historic ₹26,673.50 crore,” said G Krishnakumar, chairman and managing director, BPCL.

"A planned capital outlay of ₹1.7 lakh crore over a period of 5 years, will fuel our next wave of growth to create long term value for our shareholders," said G Krishnakumar, chairman and managing director, BPCL. He mentioned that BPCL is planning to increase its refining capacity from the current 35.3 million tonnes per annum to 45 million tonnes. Additionally, the company aims to add 4,000 new fuel stations by FY29.

On the outlook for FY25, the chairman said, "We remain cautiously optimistic and expect the crude oil prices to remain in the range of $83-87 per barrel in the near future. While geopolitical tensions and supply chain disruptions are potential hurdles, we're prepared to navigate these uncertainties with agility.''