Bharat Petroleum Corporation (BPCL) Equity Research

Date of Research – 13 January 2016

Price – Rs. 892.20

About the Company

Incorporated in 1952, Bharat Petroleum Corporation Limited (“BPCL” or the “Company”) is an Indian state-controlled oil and gas company. The Company was formerly known as Bharat Refineries Limited and changed to its current name 1977. The Company is engage in the refining of crude oil and marketing of petroleum products, as well as exploration and production of hydrocarbons. BPCL offers liquefied petroleum gas (LPG), naphtha, motor spirit, aviation turbine fuel, kerosene oil, high speed diesel, light diesel oil, and mineral turpentine oil; and furnace oil and lubricants.

The Company serves diversified industries including automotive, residential complexes, government establishments, such as defense, railways, state transport undertakings, state electricity boards; and airlines. The Company’s marketing network includes depots, aviation service stations, retail outlets, LPG bottling plants, and LPG distributors.

BPCL has interests in 26 exploration blocks, which include 11 blocks located in India; and 15 blocks located in Australia, East Timor, Indonesia, United Kingdom, Mozambique, and Brazil.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Total Income from Operations2,42,180.982,64,406.602,42,598.501,88,651.36 2,43,747.46 
Expenses2,35,508.722,55,047.652,32,820.931,74,237.64 2,30,234.99
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)6,672.269,358.959,777.5714,413.72 13,512.47  
Depreciation2,462.702,610.923,026.682,428.63 2,107.64  
Finance Costs2,518.291,982.141,180.471,132.07 696.36  
Other income1,528.991,399.792,120.051,740.89 2,047.75
PBT3,220.266,165.687,690.4712,593.91 13,699.61
Tax1,284.112,112.702,608.464,129.93 4,192.64  
PAT (before Minority Interest and share of Associates)1,936.154,052.985,082.018,463.98 9,506.97  
Profit/ (loss) attributable to Minority Interest55.32142.30275.44484.96 – 
Share of profit / (loss) of Associates(2.49) – 
Consolidated Profit / (Loss) for the year1,880.833,910.684,806.577,981.51 9,506.97  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Operating Profit Margin Ratio2.763.544.037.64 5.54 
Net Profit Margin Ratio0.801.532.094.49 3.90 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital361.54723.08723.08723.08723.08
Reserves & Surplus15,518.3716,052.4618,703.1921,838.8727,296.62
Net worth (shareholders funds)15,879.9116,775.5419,439.7222,561.9528,019.70
Minority Interest1,035.141,076.581,146.861,286.371,572.74
Long term borrowings6,189.0612,702.1821,997.7219,341.8226,043.05
Current liabilities52,488.1846,718.4543,498.3840,188.3533,707.73
Other long term liabilities and provisions543.50687.041,426.511,581.201,907.37
Deferred Tax Liabilities1,677.801,605.861,251.101,997.212,524.05
Total Liabilities77,813.5979,565.6588,760.2986,956.9093,788.52


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets29,522.3931,726.9836,951.6744,882.2954,581.61
Noncurrent Investments1,857.512,251.772,306.402,351.352,479.87
Current assets44,418.7143,070.8746,827.9836,278.6933,025.34
Long term advances and other noncurrent assets2,014.982,058.402,674.242,779.683,093.55
Deferred tax assets (Net)650.44547.15
Goodwill on consolidation (net)457.6314.4561.00
Total assets77,813.5979,565.6588,760.2986,956.9093,788.52

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW4.9211.2120.1221.3030.21

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY  2017
Total Income from Operations (Rs. Cr.)2,42,180.982,64,406.602,42,598.501,88,651.36 2,43,747.46 
Growth (%)14.16 %9.18 %(8.25 %)(22.24 %) 29.21 % 
PAT (Rs. Cr.)1,936.154,052.985,082.018,463.98 9,506.97  
Growth (%)127.44 %109.33 %25.39 %66.55 % 12.32 % 
Earnings Per Share – Basic (Rs. )26.0154.0866.47110.38 66.51 
Earning Per Share – Diluted (Rs. )26.0154.0866.47110.38 66.51 
Price to Earnings14.5410.2712.948.17 11.00 

Dividend History

The Company has maintained an average dividend yield of 3.18 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. BPCL’s average current ratio over the last 5 financial years has been 0.95 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

BPCL’s average long term debt to equity ratio over the last 5 financial years has been 0.77 times which indicates that the Company operates with manageable level of debt and will be able to ride out bad economic cycles even if the Company’s profitability margins declines temporarily.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

BPCL’s average interest coverage ratio over the last 5 financial years has been 6.10 times which indicates that the Company will be able to meet its debt obligations in the regular course of business.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, BPCL reported a promoter holding of 54.93 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 30.36 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.