HPCL & BPCL
Marketing margins, subsidies drag earnings
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| Oil refining and marketing firms, HPCL and BPCL, posted declines in profits in the second quarter as marketing margins were down so sharply that handsome inventory gains, strong refining margins and sharing of subsidy by upstream companies did not help.
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| Sales for both companies were up smartly - HP recorded a 15.74 per cent growth while BP saw a 22.85 per cent rise.
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Refining throughput for HP was up at 3.85 mmt, 13.9 per cent higher. BP's crude throughput was marginally higher at 2.34 mmt, reflecting capacity utilisation of 104 per cent.
BP's gross refining margins (GRMs) for the first half was at $5.11 per barrel compared to $3.39 per barrel for the same period last year. HP's GRM for the Mumbai Refinery was $4.85 per barrel ($3.6 per barrel) and for Vishakhapatnam Refinery was $6.66 per barrel ($3.2 per barrel).
Market sales (including exports) for HP were up 6.44 per cent at 4.79 mmt. The same for BP was up 1.82 per cent at 5.01 mmt. Marketing margins suffered as prices of petro products did not rise in proportion to the rise in crude prices.
HP recorded an inventory gain of Rs 400 crore. BP made gains of Rs 380 crore.
Subsidy under-recoveries on LPG/kerosene stood at Rs 800 crore of which Rs 280 crore were received as discounts from upstream companies. The same for HP was Rs 930 crore (share of upstream is Rs 307 crore).
| HPCL | | (In Rs crore) | Q2FY05 | Q2FY04 | % Change | | Net sales | 13,522.67 | 11,683.92 | 15.74 | | Other income | 70.01 | 101.81 | -31.23 | | Operating profit | 13,321.97 | 11,503.82 | 15.80 | | OPM (%) | 98.52 | 98.46 | - | | Net profit | 294.31 | 443.84 | -33.69 | | NPM (%) | 2.18 | 3.80 | - | | EPS (Rs) | 8.68 | 13.10 | - | | Trailing 12-month P/E | 6.28 |
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| BPCL | | (In Rs crore) | Q2FY05 | Q2FY04 | % Change | | Net sales | 13,374.10 | 10,886.40 | 22.85 | | Other income | 200.70 | 180.10 | 11.44 | | Operating profit | 13,374.10 | 10,886.40 | 22.85 | | OPM (%) | 100.00 | 100.00 | - | | Net profit | 321.40 | 477.10 | -32.63 | | NPM (%) | 2.40 | 4.38 | - | | EPS (Rs) | 10.71 | 15.90 | - | | Trailing 12-month P/E | 8.72 |
Though the government brought about some price correction in petro product prices last week, marketing margins will continue to be weak.
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| Refining margins, however, are likely to remain strong, but under-recoveries in diesel, which accounts for the largest chunk of petro product sales, is a concern.
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| Though the prices of HP and BP rose sharply after the hike in product prices, analysts are divided on the outlook for R&M companies. Earnings estimates, thus, are divergent especially for FY06.
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| FY05 estimates are around Rs 47 for HP and Rs 51 for BP. The drivers for these stocks will ultimately be the course crude prices will take and the government's stance on subsidies.
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STATE BANK OF INDIA
Growth in loan book enhances interest income
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SBI's results were in line with analysts' expectations. Net interest income rose 39.95 per cent to Rs 3,379.81 crore on the back of a robust growth in the loan book (interest income rose 6.18 per cent to Rs 8,084.84 crore). Interest expended fell 9.50 per cent to Rs 4,705.03 crore. Net interest margins rose to 3.15 per cent from 2.79 per cent.
The bank took a 69.07 per cent hit on its treasury portfolio to Rs 467.93 crore as it didn't transfer securities to the 'hold to maturity' category from the 'available to sale' head. The bank may take such hits going forward, too, in a scenario of rising interest rates. But analysts are of the opinion that it will manage to curtail excess losses by reducing its average portfolio maturity.
Operating profit fell 8.95 per cent to Rs 2,604.93 crore due to the dip in other income (42.12 per cent down to Rs 1,652.59 crore).
Advances grew 24.16 per cent to Rs 181,093 crore. However, the yield on advances reduced 65 basis points to 7.78 per cent due to falling interest rates. Retail loans, too, increased 14.57 per cent to Rs 43,208.79 crore. Deposits grew 9.34 per cent to Rs 337,684 crore while the average cost of deposits fell 122 basis points to 5.31 per cent as a result of RIB (resurgent India bond) redemption in the previous quarter.
Net NPAs (non-performing assets) were up 40 basis points to 2.96 per cent due to lesser provisioning.
| State Bank of India | | (In Rs crore) | Q2FY04 | Q2FY04 | % Change | | Net Interest income | 8,084.84 | 7,613.94 | 6.18 | | Interest expended | 4,705.03 | 5,198.91 | -9.50 | | Net interest income | 3,379.81 | 2,415.03 | 39.95 | | Other income | 1,652.59 | 2,855.07 | -42.12 | | Operating profit | 2,604.93 | 2,860.91 | -8.95 | | OPM (%) | 26.75 | 27.86 | - | | Net profit | 1,081.89 | 988.74 | 9.42 | | NPM (%) | 11.11 | 9.63 | - | | EPS (Rs) | 20.56 | 18.79 | - | | Trailing 12-month P/E | 6.67 |
SBI remains one of the favourites in the banking sector since it would be the first to gain from economic uptrends in the country. For FY05, analyst expect an EPS of Rs 90.
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| Currently, given the price of Rs 498, the stocks trades at a P/E multiple of 5.5 times its FY05 earnings (current P/E is at 6.67 times).
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ZEE TELEFILMS
Rise in costs squeezes margins
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| Zee Telefilms' results were disappointing, with net profit slipping 1.31 per cent to Rs 69.16 crore despite a 7.69 per cent gain in the topline to Rs 347.94 crore. Topline growth was aided by higher pay revenues and a recovery in advertising revenues.
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However, a disproportionate increase in programming and marketing costs and losses incurred on film distribution business resulted in a 177 basis-point fall in operating margins.
Advertisement revenue was 5.4 per cent higher at Rs 153.7 crore.
Subscription revenue jumped 7.9 per cent to Rs 160.6 crore.
Domestic subscription revenue, including DTH, was at Rs 68.7 crore - an increase of 27.6 per cent.
Other sales and services, which include the sale of set-top boxes, recorded an increase of 18.6 per cent.
Transmission and programming costs slipped 2.4 per cent y-o-y while staff costs were 20.4 per cent higher. Other expenses, including marketing and administrative costs, grew 35.05 per cent. As a result, total expenses were up 10.5 per cent.
Finance costs declined 60.1 per cent to Rs 7.7 crore from Rs 19.2 crore. During financial year 2005, Zee had repaid Rs 400 crore from its gross debt. However, a 47.11 per cent fall in other income left a negative effect on the company's bottomline.
| Zee Telefilms | | (In Rs crore) | Q2 FY05 | Q2 FY04 | % Change | | Net sales | 347.94 | 323.10 | 7.69 | | Other income | 8.68 | 16.41 | -47.11 | | Operating profit | 103.05 | 101.40 | 1.63 | | OPM (%) | 29.62 | 31.38 | - | | Net profit | 69.16 | 70.08 | -1.31 | | NPM (%) | 19.88 | 21.69 | - | | EPS (Rs) | 0.97 | 0.45 | - | | Trailing 12-month P/E | 37.10 |
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| Analysts feel that subscription revenues would see a further growth if Trai (Telecom Regulatory Authority of India) removes the freeze on bouquet pricing.
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| They feel that DTH (direct-to-home) services, which are getting off the ground, will throw a huge opportunity going forward. While the trend in adspend is looking good in the near future, the sustenance of the same would be a bonus, feel analysts.
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| While the court's verdict over broadcasting rights for cricket matches organised by the Board of Control for Cricket in India (BCCI) is awaited, the company has set up a new wholly owned subsidiary, Zee Sports, to operate a sports channel.
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| At Rs 150, the scrip trades at a P/E of 37.1. Analysts peg an EPS target of Rs 8.4 for FY05. |
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