Bharat Petroleum Corporation Limited | Oil & Gas

Company Update | 22nd May, 2012

CMP-`728.1
Market Data* Bloomberg Code BPCL:IN Reuters Code BPCL.BO Sensex/Nifty Close 16026.4/4860.5 Dividend Yield (%) 1.9 52 Week High/Low 768.4/459.1 Equity Capital(` mn) 3615.4 Face Value (`) 10.0 Market Cap (` mn) 263238.8 Avg.10 day NSE Vol. 788978.0
Source: Ace Equity, R K Global Research, *as on 22nd May12

Hold Extension of success at offshore Mozambique

TP-`794.0

Bharat Petroleum Corporation Ltd. BPCLs exploration subsidiary, Bharat Petro Resources Ltd. (BRPL) announced on 15th May12 that the operator, Anadarko, of exploration block in Rovuma Basin, Area 1, offshore Mozambique has intimated that the Golfinho discovery well encountered more than 59 net meters of natural gas pay, however geologically different from their previous find at Prosperidade complex in Offshore Area 1 block (Rovuma block). The new discovery adds an estimated 7tcf-20tcf recoverable resources in addition to the earlier announced 17tcf-30tcf discovered in Prosperidade complex taking a total of 24tcf-50tcf of reserve resource within the Rovuma block in Mozambique. We have updated BPCLs Mozambique assets value taking average of upperlower reserve estimate of 37tcf with 60% probability of resource recovery. With this our BPCLs E&P portfolio value increased from `80/share to `156/share.
E&P Portfolio Valuation Particulars Total Estimated Reserve Recoverable (%) BRPLs Stake Net Resource for BRPL (mmboe) EV/Boe ($/boe) Exchange Rate (USD-INR) BRPLs E&P EV (` million) Total E&P EV (` million) EV/Share (`)

Key Market Ratio* Latest TTM EPS (`) Book Value (`) TTM PE (x) TTM PBV (x) EV/TTM EBITDA (x) EV/TTM Sales (x) Market Cap/TTM sales (x) Share-Holding Pattern (%)*
Promoter 17.5% FII DII Others

-47.5 315.5 NA 2.3 20.0 0.2 0.1

Source: Ace Equity, R K Global Research, *as on 22nd May12

19.6%

54.9%

Brazil-Wahoo 300mmboe 80% 12.50% 30 7.5 46.0 10350

Mozambique 37tcf 60% 10% 400 2.5 46.0 45954 56304 156.0

Source: Anadarko, Company, R K Global Research Estimates 7.9%

Source: BSE, R K Global Research, As on 31st Mar12

Price vs Sensex
120

BPCL

Sensex

We revised our TP upward to `794/share. At our TP, stock offers an upside of 9% from current levels. Current valuation seems expensive at this level, however, Q4 results and under-recovery loss sharing will be crucial for rerating of the stock going forward. We gave hold rating for the stock with an upside potential.

110

Quarterly Preview
Particulars (` mn) Net Sales Expenditure Core EBITDA Other Income Operating Profit Interest PBDT Depreciation PBT Tax PAT EPS (`) Crude Thruput (MMT) Q4FY12E 605699 566234 39466 18952 58418 5669 52749 1043 51706 8379 43328 120 6.06 Q4FY11 452720 436074 16645 5101 21746 3157 18589 4828 13762 4410 9352 26 5.58 Y-o-Y (%) 33.8% 29.8% 137.1% 271.6% 168.6% 79.6% 183.8% -78.4% 275.7% 90.0% 363.3% 363.2% 8.5% Q3FY12 588468 551371 37097 4166 41263 5174 36089 4667 31422 26 31396 87 6.13 Q-o-Q (%) 2.9% 2.7% 6.4% 354.9% 41.6% 9.6% 46.2% -77.7% 64.6% 31757.7% 38.0% 38.0% -1.2%

100

90

80

70

60 May-11

Aug-11

Nov-11

Feb-12

May-12

Source: BSE, AceEquity, R K Global Research,

Research Analyst:
Chintan Sheth chintan.s@rkglobal.in

Source: Company, AceEquity, R K Global Research Estimate

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Bharat Petroleum Corporation Limited | Oil & Gas

Valuation
We updated the recent upside reserve potential of BPCLs Mozambique assets and are awaiting FY12 results due this month end. We also updated the petroleum product consumption data and refinery throughput data for the full year. With this, our target price revised upward to `794/share (earlier TP `692/share) based on a sum-of-parts (SOTP) valuation. The Core business is valued at `707/share (earlier TP `644/share) upgrading our previous EV/EBITDA multiple from 6x to 6.56x (20% discount to BPCLs 5yr Average EV/EBITDA multiple of 8.2) on FY13E Core EBITDA of `38958.7mn. BPCLs investment in Bina and NRL are valued at `94/share and `47/share respectively using EV/ton of $250/ton for Bina and $200/ton for NRL. Its investments in publicly traded companies are valued at `67/share (20% discount to their yearly average prices) while other investments are valued at `279/share (1x its Book Value of FY11). Downside risks are (1) Government compensation/Upstream discounts lower than expected; (2) Government continues to regulated pricing mechanism for diesel and LPG; (3) Steep decline in regional GRM; (4) Sustained higher crude oil prices and depreciation in rupee exchange rate; and (5) Steep decline in prices of listed investments.
BPCLs SOTP Valuation Summary SOTP Value Core Standalone Business Other Investments Oil India Ltd. Petronet LNG Ltd. Indraprastha Gas Ltd. Bina Refinery Numaligarh Refinery Ltd. E&P Assets* EV Less: Debt Adj. Cash SOTP Value Method 6.56x FY13 EBITDA 1x FY11 BV 20% Disc to TTM Price 20% Disc to TTM Price 20% Disc to TTM Price $250/ton (49%) $200/ton (61.65%) Wahoo & Mozambique FY13E (Debt-Cash) ` Million 255569 100897 3201 11836 9209 33810 17015 56304 487842 200670 287173 TP (`) 707 279 9 33 25 94 47 156 1349 555 794 Previous TP (`) 644 279 15 31 26 94 47 80 1216 524 692

At CMP, the stock is trading at P/E and EV/Core EBITDA of 13.7x and 17.6x respectively of FY13E EPS of `53.0 and Core EBITDA of `26338mn respectively. At our target price of `794, the stock offers an upside potential of ~9% from current level. We upgrade our TP on BPCL giving hold rating to the stock with an upside potential.

Stock Coverage History

850 800 750 700 650 ` 600 550 500 450 400 May-11 RU-`692 15-Feb-12 Buy

Not Covered

Under Coverage

CU-`794 22-May-12 Hold

IC-`560 9-Jan-12 Hold

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

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Financial Highlight
Income Statement Gross Sales Less: Excise Duty Net Sales Inc/Dec in Stock RM Consumed Power & Fuel Cost Employee Cost Other Mfg Expenses G&A Expenses Misc Expenses Total Expenditure Core EBITDA Other Income EBITDA Interest EBDT Depreciation Profit Before Tax Provision for Tax Profit After Tax Ratio Analysis ROE ROI ROCE ROA Current Ratio Acid Test Ratio Debt/Equity Ratio Net Gearing Ratio EBITDA Margin Pre Tax Margin PAT Margin EBITDA (Inc. OI) Sales Growth EBITDA Growth PAT Growth EPS Growth Core EBITDA Growth EPS DPS BVPS CEPS Interest Coverage Ratio DSCR Assets Turnover Ratio WC Turnover Ratio F.A. Turnover Ratio C.A. Turnover Ratio FY11 1632182 116732 1515451 -19934 1408355 4759 28005 35848 23429 2353 1482815 32636 19053 51688 11008 40681 16554 24127 8660 15467 FY12E 2270232 158916 2111316 -12874 1966617 2879 30365 51014 33689 13288 2084978 26338 22169 48507 15269 33238 15211 18028 6009 12019 FY13E 1960504 137235 1823269 -13426 1682267 2734 27718 43977 28648 12391 1784310 38959 19144 58103 12505 45598 16678 28920 9639 19281 FY13E 12.0% 10.6% 11.2% 3.1% 1.3 0.0 1.3 0.8 3.2% 1.6% 1.1% 2.1% -13.6% 19.8% 60.4% 60.4% 47.9% 53 16 443 99 3.3 17.7 3.0 26.4 9.9 6.1 FY14E 2040018 142801 1897217 -17414 1749574 3202 30162 46135 29930 14420 1856010 41207 19921 61128 12100 49028 17791 31236 10411 20825 FY14E 11.9% 10.9% 11.5% 3.3% 1.3 0.0 1.2 0.9 3.2% 1.6% 1.1% 2.2% 4.1% 5.2% 8.0% 8.0% 5.8% 58 16 485 107 3.6 17.7 3.0 29.1 9.9 6.2 Balance Sheet FY11 FY12E Sources Of Funds Share Capital 3615 3615 Total Reserves 136961 143199 Shareholder's Funds 140576 146814 Total Debts 189719 234903 Total Liabilities 330295 381717 Application Of Funds Gross Block 293342 303465 Less: Acc. Depreciation 133349 148560 Net Block 159993 154905 CWIP 9694 24495 Investments 113780 147792 Inventories 153751 183680 Sundry Debtors 26644 33789 Cash and Bank 3800 4859 Other Current Assets 59600 67419 Loans and Advances 32263 44456 Total Current Assets 276058 334202 Total Current Liabilities 219583 264898 Net Current Assets 56475 69305 DTA/(DTL) -10075 -14779 Total Assets 330295 381717 Cash Flow Statement FY11 FY12E Cash Flow from Operating EBITDA 51688 48507 Changes in CA (excl cash) -39843 -57085 Changes in CL 48272 45315 Changes In WC 8429 -11770 Cash From Operations 60117 36737 Direct Taxes Paid 8660 6009 Net Cash From Operations 51457 30728 Cash Flow from Investing CAPEX -24162 -24495 Investments 21234 -34012 Net Cash From Investing -2928 -58507 Cash Flow from Financing Change in Debt -32233 45184 Change in Equity 0 0 Interest Paid -11008 -15269 Dividends Paid -5772 -5781 Others -622 0 DTL & Misc Changes 1482 4704 Net Cash From Financing -48153 28838 Cash at the beginning 3424 3800 Net Increase in Cash 376 1059 Cash at the end 3800 4859 Ratio Analysis Tax Burden Interest Burden OPM Assets Turnover Financial Leverage ROE FY11 FY12E DuPont Analysis 64.1% 66.7% 68.7% 54.1% 2.3% 1.6% 2.7 3.2 4.0 4.5 11.0% 8.2% FY13E 3615 156703 160319 208414 368733 327959 165238 162722 22198 127629 157971 29338 7745 64985 41280 301319 232371 68948 -12763 368733 FY13E 58103 35769 -32527 3243 61346 9639 51707 -22198 20163 -2034 -26489 0 -12505 -5777 0 -2016 -46786 4859 2886 7745 FY13E 66.7% 69.8% 2.3% 3.0 3.8 12.0% FY14E 3615 171750 175365 201670 377035 350157 183029 167128 25086 132805 160857 31112 3172 63301 46964 305405 240109 65297 -13281 377035 FY14E 61128 -8659 7738 -922 60206 10411 49795 -25086 -5176 -30262 -6744 0 -12100 -5779 0 518 -24106 7745 -4573 3172 FY14E 66.7% 72.1% 2.3% 3.0 3.6 11.9%

FY11 FY12E Profitability Ratio 11.0% 8.2% 9.9% 6.9% 10.6% 8.7% 2.8% 1.8% Liquidity Ratio 1.3 1.3 0.0 0.0 1.3 1.6 0.7 0.6 Margin Ratio 3.4% 2.3% 1.6% 0.9% 1.0% 0.6% 2.2% 1.2% Growth Ratio 23.9% 39.3% 11.9% -6.2% 0.6% -22.3% 0.6% -22.3% 37.2% -19.3% Per Share (`) 43 33 16 16 389 406 89 75 Service Ratio 3.2 2.2 18.2 16.4 Efficiency Ratio 2.7 3.2 26.8 30.5 8.9 11.8 5.5 6.3

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Locate Us
City Ahmedabad Delhi Jaipur Kolkata Mumbai Chennai Rating Criteria
BUY HOLD SELL

Address 501, Wall Street, near Gujarat College, Ahmedabad-380 006 Suite 5, Sagar Apartment, 6 Tilak Marg, New Delhi-110 001 248, Ganpati Plaza, 2nd Floor, M I Road, Jaipur-302 001 2 Saklat Place, Suite 9, Kolkata- 700 072 308, 3rd Floor Morya Estate, Opposite Infiniti Mall, New Link Road, Andheri West, Mumbai-400 053 163/2, Kutcherry Road, Mylapore Chennai- 600 004

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Stock to generate return above 15% from CMP over the next 12 months period Stock to generate return between 0-15% from CMP over the next 12 months period Stock to generate less than 0% from CMP over the next 12 months period

Coverage Terminology
IC = Initiating Coverage RU = Result Update EU = Event Update NC = Not Covered

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