Bharat Petroleum Corporation (NS:BPCL) had posted strong results in its latest quarter ending December 2016. The company showed its revenues increasing 13.6% QoQ, beating estimates, and EBITDA increasing 131.7% QoQ. However, the company's ongoing Kochi refinery work meant that gross refining margins (GRMs) have been lower than expected at US$5.9/bbl.
BPCL is aiming to complete upgrading its Kochi refinery by Mar 2017, by the end of the fourth quarter, and full capacity utilization to start in the coming financial year. The refinery's upgrade is expected to add 8-10% to to the company's earnings in FY18, driven by improvement in refining margins by an estimated $2/bbl. So the Kochi refinery timeline, and the improvement shown in refining margins once it is running at capacity will be key elements to watch - any delays and problems here will substantially impact estimates for BPCL. So far, except for a brief period of worker unrest in February this year, the Kochi refinery expansion has been running on schedule.
Government policy has also been aiding OMCs like BPCL. Deregulation in diesel prices have sharply pared subsidy losses for the firm. The increase in kerosene prices by the government by 25 paise, and the decision to cap sharing of kerosene subsidy has also cut company losses. The Direct Benefit Transfer now in place for LPGs has reduced losses BPCL previously faced due to leakages and corruption in distribution of the cylinders.
Since March 14, BPCL has been outperforming the S&P BSE Energy Index. Government energy policy in the coming quarters will be important for BPCL, and the definitive UP election win for the BJP suggests that the government's moves to cut and cap fuel subsidies for end consumers, and introduce direct benefit transfers has not hurt its popularity. That may encourage the central government to continue in the same direction, which would bring some green into BPCL's balance sheet.
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