We are reducing our gross refining margin assumptions for BPCL to $4.4/barrel for FY14 and $4/barrel for FY15 (from $4.5/barrel for both years), reflecting our continued bearish outlook on refining margins for 2014.
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 raise our FY15E EPS by 11.4%. At BPCL’s Rovuma basin Area 1 offshore block in Mozambique, its E&P business focus is shifting from exploration to pre-development activity. BPCL has said that industry consultants have found the resource base of part of the “Prosperidade complex” to be sufficient to support a 2-train 10 mtpa LNG plant. The frontend engineering and design work of the plant is ongoing. We expect a final investment decision on the project at latest by 2H14.
We raise our SOTP-derived six-month target price to R479 (from R457), now using our revised FY15E numbers (formerly FY14E).
Our model comprises our values for BPCL’s core
refining and marketing business (at an unchanged 6x EV/Ebitda), E&P business and listed investments. Our value for its E&P business is lowered to R112/share (from R125/share) due to its increased leverage.
We reaffirm our ‘buy’ rating on BPCL.
Daiwa Capital Markets