BPCL Expected to Report Profit in Q2 with Lower Retail Losses and Strong Margins

Bharat Petroleum Corp Ltd (BPCL) is anticipated to return to profitability in the September quarter, marking a significant improvement compared to the previous year. This turnaround is attributed to reduced retail losses, inventory gains, and robust gross refining margins.

Analysts are projecting a 34 percent decline in net profit for BPCL in the September quarter, amounting to Rs 6,580 crore. According to a poll of 10 analysts by Moneycontrol, the company’s net sales are expected to decrease by 10 percent on a year-on-year basis and 8 percent on a quarter-on-quarter basis, reaching Rs 1.03 lakh crore.

BPCL is poised for a substantial 640 percent growth in EBITDA, primarily driven by strong middle distillate spreads and inventory gains resulting from fluctuations in crude oil prices. Analysts also foresee a reduction in retail losses, which will help offset the marketing EBITDA loss and compensate for the year-on-year decline in gross refining margins (GRMs). The latter decline is a result of corrections in fuel spreads after the imposition of sanctions on Russia in the second quarter of FY23. Analysts estimate that BPCL’s refining margin will reach $19 per barrel, while retail losses for motor spirit (MS) and high-speed diesel (HSD) are expected to decrease to Rs 2.5 per liter, down from Rs 10 per liter a year ago.

According to a Sharekhan note, BPCL is likely to report a significant quarterly earnings decline in Q2FY24 due to concerns about under-recoveries in auto fuels, despite unchanged retail auto fuel prices. However, the impact of these concerns will be partially offset by robust refining margins and substantial inventory gains resulting from the sharp increase in Brent crude oil prices.

During 2QFY24, Brent crude oil prices reached $87 per barrel, marking an 11 percent increase quarter-on-quarter. This increase was driven by OPEC+ maintaining production cuts despite strong global consumption, resulting in a 138 percent quarter-on-quarter increase in Gross Refining Margins (GRMs), reaching $9.5 per barrel.

JM Financial anticipates that BPCL will report a GRM of $16.2 per barrel for the quarter, an increase from $12.6 per barrel in 1QFY24. This projection is based on a core GRM of $13.2 per barrel and a crude inventory gain of $3.0 per barrel. Crude throughput is expected to be at 9 million metric tonnes, down 12.9 percent quarter-on-quarter, with marketing sales volume at 12.4 million metric tonnes, down 5.4 percent quarter-on-quarter. Auto fuel gross marketing margins are projected to decrease to Rs 3.3 per liter in 2QFY24, compared to Rs 8.8 per liter in 1QFY24. However, this decrease is expected to be partially offset by a product inventory gain of $1.0 per barrel.

Key factors to monitor include marketing earnings, gross refining margins, inventory losses, changes in working capital and debt, as well as interest expenses.