BPCL reported its second-quarter numbers which were lower than street estimates. Revenues declined 16 percent to come in at Rs 64,350 crore versus an estimate of Rs 69,925 crore. Margins at 3.7 percent showed an improvement of 90 bps compared to the previous quarter but were lower than street estimates of 4.5 percent.
The net profit was higher only because of a MAT credit reversal Rs 53 crore versus Rs 277 crore in the first quarter. Reported GRMs at $3.4/bbl were down 38 percent when compared to the same period last year but up 21 percent compared to the first quarter. Core GRMs were at $3.8/bbl versus an expectation of $4.7/bbl.
Here is an edited excerpt of the interaction with N Vijayagopal, Director Finance of BPCL Let’s start with the GRM number. They have gone up but still, the growth is lower than what analysts expected considering the global refining margins looked much better. Why was the growth not as much as anticipated?
There is not much movement in the crack spreads on a year-to-year basis. The crack spreads on diesel has gone up by a dollar to a barrel. MS has come down by 2 dollars to a barrel. So if you take our core CRM, it was 3.31 dollars last year 2nd quarter and 3.82 dollars to a barrel in the 2nd half of the current year. So the crack spreads remain the same though there is an improvement in the diesel crack spreads by a dollar to a barrel, MS has come down by 2 dollars. So our bearings are reflective of the crack spreads.
What will GRMs look like by the end of this year?
That I don't know how to predict the numbers, but we are expecting an improvement in the GRM, especially on the diesel side.
What is the capacity utilization at Kochi and Mumbai refineries? Any plans of revamping either of them?
As of now, we are running both the refineries at capacity or slightly higher than capacity at about 105 percent. Immediately we have no expansion plans in both the refineries but we are going for a revamp in the Mumbai refinery for FCCU which is going to improve the profit from the refinery significantly. But that will take another 3-4 years to complete.
What kind of Investment you are looking at for expansion in the Mumbai refinery?
Mumbai refinery, the CCU project investment is Rs 11,000 crore.
So apart from this investment what will the Capex look like for this year? Will you take additional debt for this?
Actually our debt to equity ratio is a very healthy ratio of about 0.8 to1 and we don't have major capex plans in the current year. It is about Rs 8,000 crore and we would end the year with spending slightly higher than our prime number of Rs 8,000 crore and it will be mostly funded by our internal sources. There could be some short term deficits that can be funded by working capital.
What were the marketing margins this quarter? You have lost close to 150bps market share in the marketing segment. Can you split it for us in terms of different products?
The marketing margins are more or less on the normal lines of expectations of around 2 dollars at the core level of marketing margin for both diesel and petrol. There are days when the numbers are not that high but on an overall basis, marketing margins have remained on a normal level. Now coming to the market share, we have actually been the highest market share growth in MS in the quarter as well as in the half-year and for HSD we are number 2. But overall the decline in diesel growth in the country of about 2.5 percent has affected all of us. Though we are number 1 in growth in MS around 7 percent and HSD about -2 percent in the quarter is there for us 2.4 percent to be precise but that is to be seen in the light of overall decline in the market growth of diesel in the country experiencing all of us.
How has the demand been on the ground? Has it improved in this month? Last quarter saw weakness in diesel consumption.
It is actually deteriorating. In the month of October, we were expecting to pick up but that didn't happen. October is still worse.
There has been this big divestment buzz. Have you received any communication from the government? ; will it be a complete divestment or partial, what is the valuation that you are looking at?
This is a government policy decision so it is a matter to be dealt with the govt at that level. We have not been informed officially about any plan of disinvestment apparently because there is a cabinet decision on disinvestment that has happened so far. Therefore it is too early to talk about the valuation and there are likely people who are interested in that. If the govt is serious about this and the govt makes a policy decision to sell BPCL, there will follow a process and that will take at least 4-5 months of time and it is too early for us to comment on how the valuations are going to work out.
Do you think 4-5 months is sufficient for divestment? And would you prefer a foreign player or a domestic player to be the suitor? That is again a question for the government to answer but as an individual, I don't think 4 months is sufficient for completing the divestment.