Refining profits

Bharat Petroleum has been on a roll, with oil processed at an all-time high

For Bharat Petroleum Corporation Limited (BPCL), the public sector oil refiner and marketer, 2016-17 was a spectacular year, with a record all-time high profit, the highest-ever dividend payout and peak market capitalisation levels, and success in winning Maharatna status in September 2017.
 
With a total refining capacity of 36.5 million tonnes, the company is the second-largest state-owned refiner, operating more than 14 per cent of India’s installed refining capacity. On the retail network side, BPCL operates the third-largest fuel retail network of 14,255 fuel outlets. The oil marketer is of strategic importance to the country since, along with the other two public sector companies Indian Oil and Hindustan Petroleum, it operates a majority of the country’s refining and fuel retailing capacity. Reflecting this commitment towards India’s fuel security, BPCL will also invest in a 60 million tonne per annum refinery in Maharashtra, taking a 25 per cent equity stake.

 
In 2016-17 BPCL recorded an all-time-high profit after tax of Rs 95.07 billion and declared a dividend of 325 per cent, the highest-ever in its history. Its market capitalisation also crossed the Rs 1 trillion mark in 2017.
 

In terms of operational performance, BPCL’s primary refineries — Kochi and Mumbai — reached their highest-ever production levels during the year. The Kochi refinery processed 11.79 million tonnes of crude oil, while the Mumbai refinery’s throughput was 13.6 million tonnes.
 
Its financials too have improved — return on net worth went up from 21.3 per cent in 2013-14 to 31.9 per cent in 2016-17, while net profit grew at a compounded annual growth rate of 34.5 per cent over this period.

 
The company recently acquired a 21.1 per cent stake in Fino Paytech, which has secured a payments bank licence from the Reserve Bank of India, with the intention of playing a meaningful role in India’s financial inclusion story. This also helps the fuel retailer offer one more easy pay option to its customers. BPCL has been active in picking up retail market trends and adapting accordingly. The last few years have seen private companies attempting to gain market share in the fuel retail business. In response to growing competition, BPCL has undertaken a revamp of some of its highway fuel outlets to ensure it does not lose customers.

 
“BPCL has taken steps like tweaking the loyalty programme, and focusing on branding, sales promotion, etc to revive muted volume growth in auto fuels. After losing market share in key products of petrol and diesel in FY17, BPCL tweaked its loyalty programme and sharpened focus on customer relationship management and branding. These efforts seem to be paying off, evidenced by FY18 volumes rising; these are expected to sustain over FY18-20,” analysts with IIFL wrote in a report dated March 1.
 
The company enjoys an AAA rating with a stable outlook from Crisil for some of its debt instruments, strengthening confidence in its financial prudence. BPCL says it debt-equity ratio improved to 0.6 in 2016-17, from 1.0 in 2013-14. The interest coverage ratio (earnings before interest, taxation, depreciation and amortisation, or Ebitda) to interest in the same period improved to 27.1 in 2016-17, from seven in 2013-14.

 
Confident of greater opportunities in future, BPCL has steadily invested in capacity expansion in the marketing, refining and upstream segments. In 2016-17 its capital expenditure was Rs 165.27 billion, the highest since 2012-13. In 2017 the company said it had planned a capital expenditure of about Rs 1.08 trillion over a period of five years.
 
Analysts are positive that BPCL is likely to perform better in the years ahead. Some added that they remain structurally positive about the company, owing to its superior refining assets, rising capacity and healthy cash flows.
 
As part of its efforts to contribute to the green energy initiative, BPCL has also made small investments in a proposed 1 Mw solar farm to be built in a joint venture with the Punjab State Electricity Board. It already operates two wind mills in Karnataka of 5 Mw capacity.