We are reducing our gross refining margin assumptions for Bharat Petroleum Corporation Ltd (BPCL) to $4.4/bbl for FY14 and $4/bbl for FY15 (from $4.5/bbl for both years), reflecting Daiwa?s continued bearish outlook on refining margins for 2014.
Reflecting the combined impact of our revisions to exchange rates, gross refining margins and under-recoveries, we raise our FY14 and FY15 Ebitda forecasts by 6% and 2%, respectively, to R4,580 crore and R4,470 crore.
We reduce our FY14E EPS by 13.3%, as we have increased our forecast for interest costs by 29%, due mainly to non-cash forex losses on borrowings incurred in H1 FY14.
We reaffirm our ‘buy’ rating. Despite its 29.6% share-price rally over the past 3 1/2 months, its current share price does not reflect fully the value of its E&P business, in our view. Excluding our values for its E&P business and investments, the stock trades at a FY15E PBR of 0.76x, which we believe offers good value.
The key risks would be reversals of planned diesel price hikes or further INR depreciation.
