Sector: Oil & Gas.
Recommendation: Strong Buy
Holding period: 10 Days.
Bharat Petroleum Corporation Limited (BPCL), one of the largest public sector oil marketing companies in India has three operating refineries (including subsidiaries) and a strong network of marketing and distribution of petroleum products across the country. BPCL is one of the first few public sector companies who have leveraged technology to become more efficient, reduce costs, and achieve greater customer satisfaction. It is the first Public Sector Oil Company to implement Enterprise wide Resource Planning (ERP) solutions - SAP. Leveraging technology has also helped BPCL to have an efficient risk mitigation system in place.
BPCL has reported 13.7% yoy rise in net sales to Rs 667.9 bn for Q1 FY15. The growth was on the account of 5.9% yoy rise in domestic sales and 7% yoy increase in product realizations. Export volumes were lower by 51% yoy. Budgetary support to the topline was seen at Rs 24 bn vis-a-vis Rs 19 bn in corresponding quarter last year and sans the government payout the growth in topline was lower at 13.3% yoy. Total product sales for the quarter were recorded at 9.4mmt, implying a 1.7% yoy growth mainly led by 5.9% growth in domestic sales. For the quarter, growth in volumes was driven by MS, LPG and HSD segments which grew by a healthy 10% yoy, 12.2% yoy and 2.5% yoy respectively. The net under recoveries for Q1 FY15 stands at Rs 5 bn as compared to Rs 5.5 bn seen last year.
Quarterly GRM’s fall on back of weak environment
The gross refining margins (GRM) for the quarter fell from US$ 6.7/bbl in Q4 FY14 to US$ 3.4/bbl owing to weakness in benchmark Singapore GRMs and weaker product slate. The quarterly refining profits were lower by 15.2% yoy on the back of 16.5% fall in GRMs, lower throughput were offset partially by depreciation in rupee.
Net profit at Rs12.1bn
BPCL reported a net profit of R s12.1bn as compared to a profit of Rs 1.5bn in Q1 FY14. The interest expenses came in lower at Rs 1.9bn a fall of 63% yoy as the payments from government improved considerably leading to lower working capital loans. On capex for modernization of Kochi refinery, management guided for Rs 140 bn spread over 4 years with bulk of the spending starting from FY15.
E&P FID nearing and recent policy moves incrementally favorable; Maintain BUY
While the OMC’s have been plagued with uncertainties surrounding the subsidy payouts and have witnessed sporadic cash flows, BPCL’s venture into the E&P segment is a welcome move. The project execution in E&P is still far but with the Final Investment Decision (FID) nearing for its upstream asset in Mozambique, some monetary crystallization of upstream assets is expected. Additionally on the marketing side, recent policy steps are expected to be incrementally positive. Also, softening crude prices is the much needed booster shot for the ailing oil and gas space. Thus, BPCL remains one of our top picks in oil & gas space and we maintain our BUY recommendation with a 10 day price target of Rs 740.
BPCL has been trading with good volumes in the range of 630 to 720 with good volumes and the stock continues to take support at key levels. The stock traded above the pivot point for the day at 660, and broke the first resistance level of 667 with high volumes. The key support levels for the stock are 660, 664, and 667 while the while the key resistance levels are 674, 677, and 682. These levels are computed using the classic methodology formulas. The RSI, Stochastic, ADX, Williams, CCI, ATR, Ultimate Oscillator, and ROC indicate strong buys on the hourly chart, while the STOCHRSI indicates a neutral position. Among the key technical indicators only the ADX indicates neutral, while the rest indicate strong buys.
The Moving Averages, both simple and exponential, of 5, 10, 20, 50, 100, and 200 periods all indicate strong buys save for the 5 minute simple moving chart which indicates a sell while the exponential average for the same period is still a buy.
Since the stock has been outperforming the Sensex (see Illustration above), and the technical indicators are favorable, we maintain strong BUY Rating on the stock with a target of 740 with a holding period of 10 days.
ARTICLE BY JOBY KLAPTON( TECHNICAL ANALYST, HBJ CAPITAL)
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