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The market responded positively to the Q1 results of oil marketing companies (OMCs), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) despite numbers being weaker than consensus.
BPCL’s reported gross refining margin (GRM) was in line at $7.9 per barrel (bbl) in Q1FY25, which implies marketing margin stood at Rs 4.8 per litre.
Standalone profit after tax or PAT at Rs 3,000 crore was down versus consensus due to under-recoveries in LPG business.
The refining throughput of 10.1 million tonnes (mmt) was marginally below consensus with Russian crude at 39 per cent of mix.
Sales volume (excluding exports) was 13.2 mmt in Q1FY25 (flat Q-o-Q).
The benchmark Singapore GRM is marginally up in Q2FY25, which may lead to muted refining performance.
Management guidance was that BPCL took a hit of Rs 2,000 crore due to LPG under-recoveries in Q1FY25.
BPCL is losing Rs 600 crore per month on LPG but remains hopeful of financial support.
Russian crude discounts were flat quarter-on-quarter (Q-o-Q) at $3.5-4 per bbl. BPCL is looking to add refining capacity and believes GRMs should recover to normalised levels by Q2FY25 end.
Analysts would downgrade consolidated PAT for FY25 assuming LPG under-recoveries continue but there are rumours of government support in H2FY25.
The Ebitda stood at Rs 5,650 crore with a marketing inventory gain of Rs 400 crore in Q2FY25.
Adjusted Ebitda stood at Rs 5,250 crore. As of June this year, BPCL’s debt stood at Rs 15,200 crore versus Rs 18,800 crore as of March 2024.
The current marketing margins remain healthy which is a positive.
But the upside may be limited unless LPG compensation occurs.
It was similar for HPCL where the LPG under-recoveries also hurt financials despite good operational performance.
HPCL’s Ebitda stood at Rs 2,100 crore in Q1FY25, well below consensus.
The miss was due to LPG under-recovery of Rs 2,350 crore, and again, there are hopes of support in H2FY25.
HPCL’s refining throughput was 7 per cent above estimate at 5.8 mmt (up 7 per cent year-on-year or Y-o-Y).
The reported GRM was below estimate at $5 per bbl (down 32 per cent Y-o-Y).
The marketing volumes stood at 12.6 mmt, also up 7 per cent Y-o-Y.
The marketing margin (computed including inventory gains) stood at Rs 3 per litre, down 60 per cent Y-o-Y.
The PAT was reported at Rs 360 crore, way below the consensus, due to the LPG under-recovery and also due to a drop in Other Income.
By June 24, HPCL had a cumulative negative net buffer of Rs 2,440 crore, due to the under-recovery on LPG cylinders (Rs 100 crore under-recovery in FY24 as well as Q1FY25 under-recoveries of Rs 2,350 crore).
HPCL clocked its highest-ever quarterly sales volume of 12.63 mmt (including exports), implying small market share gains. Lubricant sales stood at 152,000 metric tonnes (MT) (up 3 per cent Y-o-Y).
It also posted highest-ever petrochemical sales of 30,300 metric tonnes in Q1FY25 and pipeline though 6.83 mmt was recorded in Q1FY25.
The lubricants division introduced three new brands.
HPCL has commissioned 126 new retail outlets, bringing the total outlets to 22,148. It has finalised three master sales purchase agreements (MSPAs) with suppliers for sourcing spot LNG cargoes, for a total number of eight MSPAs.
It achieved the highest-ever Ethanol blending ratio of 14.3 per cent in Q1FY25 and capex of Rs 2,020 crore was incurred in Q1FY25.
Key process units such as diesel hydro-treating (DHDT) and hydrogen generation unit (HGU), are currently in the pre-commissioning phase.
As of June’24, the total capex commitments stood at Rs 69,850 crore and capex incurred was Rs 48,000 crore.
The Visakhapatnam refinery’s 3.55 million metric tonnes per annum residue upgradation facility is anticipated to be mechanically completed in Q2FY25, with commissioning in Q3FY25. In both cases, investors are pinning their hopes on the government eventually compensating companies for the LPG under-recoveries since this is a controlled price substance.
