SECURITY ANALYSIS

&
INVESTMENT MANAGEMENT

Assignment No. 2

Fundamental Analysis of BPCL

Submitted By
Ashok Kumar Rathore

Roll no. :-N-11

 SECURITY ANALYSIS & INVESTMENT MANAGEMENT Paper - 3102

5th Sem. , MBA –PT

INTRODUCTION:

Burmah-Shell Refineries Limited (BSR) was incorporated on 03rd Nov 1952 as a

Company under the Indian Companies Act, 1913, at Mumbai, with the Authorized
Capital of Rs. 25 crore. A refinery
was set up by this Company at Mahul, Mumbai. Secondly, the Burmah-Shell Oil
Storage &
Distributing Company of India Ltd (BSM), a foreign Company, established in
England in 1928,
was carrying on in India the business of Distributing & Marketing petroleum products &
for that
purpose established places of business at Mumbai & other places in India.

Pursuant to the agreement dated 23rd Dec 1975 between the Government of India
(GOI), the
Burmah-Shell Oil Storage and Distributing Company of India Ltd. (BSM) and the
Burmah Shell
Refineries Ltd. (BSR), the GOI acquired 100 per cent equity share holding.
Simultaneously, through `The Burmah Shell acquisition of Undertakings in India Act,
1976’, the GOI also acquired the right, title and interest and liabilities of BSM in
relation to its undertakings in India.

The name of BSR was changed to Bharat Refineries Limited (BRL) and subsequently to
Bharat Petroleum Corporation Limited.

The GOI disinvested its holding by selling stake to Financial Institutions/Mutual Funds
etc. during 1991-92 and 1992-93. and pursuant to the merger of Kochi Refineries Ltd
with BPCL, in 2006 the shareholding of GOI has changed to 54.93%.

Bharat Petroleum Corporation Limited (BPCL) is one of India largest PSU companies,
with global fortune 500 rank of 307 (2010). Its corporate office is located at Ballard
Estate, Mumbai.
As the name suggests, its interests are in petroleum sector. It is involved in then
refining and
retailing of petroleum products.

Bharat Petroleum produces a diverse range of products, from petrochemicals and

solvents to aircraft fuel and speciality lubricants and markets them through its wide
network of Petrol Stations, Kerosene Dealers, LPG Distributors, Lube Shoppes, besides
supplying fuel directly to hundreds of industries, and several international and
domestic airlines.

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FUNDAMENTAL ANALYSIS

Fundamental analysis is the examination of the underlying forces that affect the
interests of the economy, industrial sectors, and companies. It tries to forecast the
future movement of the capital market using signals from the economy, industry and
company.

Fundamental analysis requires an examination of the market from a broader

perspective. The presumption behind fundamental analysis is that a thriving economy
fosters industrial growth which leads to development of companies.

Economic analysis

According to Indian economic survey 2009-10, India's GDP growth rate in 2009-10
was 7.2% & India's GDP to return to 9% in 2011-12. India can become world's
fastest growing economy in 4 years. This indicates & forecasts good economic
environment for the stock market. Recovery from the recession has been reflected
in the stock market recovery.

According to the domestic outlook from Indian monetary policy 2010-11, Exports
have been expanding since October 2009, a trend that is expected to continue. The
industrial sector recovery is increasingly becoming broad-based and is expected to
take firmer hold going forward on the back of rising domestic and external demand.
The improved performance of the industrial sector is also reflected in the improved
profitability in the corporate sector.

During 2009-10, money supply (M3) growth decelerated from over 20.0 per cent at
the beginning of the financial year to 16.4 per cent in February 2010 before
increasing to 16.8 per cent by March 2010, slightly above the Reserve Bank’s
indicative projection of 16.5 per cent. This was reflected in non-food credit growth
of 16.9 per cent, above the indicative projection of 16.0 per cent.

Following are the some of the risks to growth & upside risks to inflation :
1) Reduction in private demand in major economies due to high unemployment
rates, weak income growth and tight credit conditions.
2) Increase in global commodity prices could, therefore, add to inflationary
pressures.

Role of Oil and Natural Gas Industry in Indian Economy

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 India is the 6th largest consumer of petroleum.

 By the year 2011, India is expected to rank 4th in terms of consumption of
energy.
 The petroleum Sector constitutes 2.36% of Indian GDP.
Government expenditure in and Natural Gas Industry
From a modest beginning with the capacity of 0.25 million tonnes per annum when
planning began, the Indian petroleum-refining industry has come of age with an
annual capacity of 45.55 million tonnes at the end of the sixth Five-Year Plan. The
rapid expansion of refining capacity has enabled the country to achieve a
considerable degree of self-sufficiency in petroleum products and has encouraged
the creation of fertilizer, petrochemical, and tertiary downstream industries.

Govt of India has a planned outlay of Rs 2,29,072 crores during the XIth Plan.

FDI’s role in industry

The government has taken several progressive steps to attract investment into the
industry. Among other measures, it is allowing 100% foreign direct investment (FDI)
in
private companies and 26% in government-owned companies. 100% FDI is also
possible
in exploration, gas pipelines, petroleum products, and marketing, thus effectively
offering
investment opportunities in various avenues.

India’s energy industry will provide investment opportunities of around $150 billion
over the next five years.

A total of US$ 28.08 billion FDI flows were observed during 2008-09.

Indian Petroleum Industry in Asia Pacific region

The latest India Oil & Gas Report from BMI (Business Monitor International)
forecasts that the country will account for 11.23% of Asia Pacific regional oil
demand by 2013, while providing 10.85% of supply. Asia Pacific regional oil use of
21.40mn barrels per day (b/d) in 2001 reached 25.68mn b/d in 2007. It should
average 26.32mn b/d in 2008, and then rise to around 29.65mn b/d by 2013.

India's share of gas consumption in 2007 was 9.55%, while its share of production
was 8.98%. By 2013, its share of gas consumption is forecast to be 10.22%, with
the country accounting for 10.34% of supply.

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Industry Analysis

Salient Statistics
 The total refinery output in the period 2009-10 was 160.11 million tonnes which
is marginally lower than output in 2008-09 of 160.77 million tonnes. The
average growth rate of the refinery output since 2004-2005 has been 4.76%
per year.
 Gross Production of Natural Gas in the country at 32.85 billion cubic metres
during 2008-09 is 1.33% higher than the production of 32.42 billion cubic metres
during 2007-08
 The sales/consumption of petroleum products during 2008-09 were 133.400
million metric tonnes (including sales through private imports) which is 3.45%
higher than the sales of 128.946 million metric tonnes during 2007-08.
 The refining capacity in the country increased to 177.97 million tonnes per
annum (MTPA) as on 1.4.2009 from 148.968 MTPA as on 1.4.2008.
 Indian petroleum demand depends highly on import of oil and natural gas.
Around 70% of the demands are fed by the imports of oil and natural gas.
 The security pertaining to energy has become one of the primary concerns of
the Central Government Presently India is trying to grab a share of the oil and
gas fields from Central Asia to Myanmar and Africa The area of interest for the
Indian Oil and Natural Gas Industry is to search for petroleum in both offshore
and onshore blocks.
 The expected demand for Petroleum sector as estimated by ministry of
petroleum is as below:
Supply and Demand of Petroleum Products
(During 1998-99 to 2024-25)
(In MMT)
Year Demand (Without Demand (With Meeting Estimated Refining Estimated Crude
Meeting Gas Deficit) Gas Deficit) Capacity Requirement

1998-99 91 103 69 69
2001-02 111 138 129 122

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2006-07 148 179* 167 173

2011-12 195 195** 184 190
2024-25 368 368 358 364

Major Player in the Industry

The installed capacity of India as on 01.04.2009 was 177 Million Tonnes, out of
which 105 million tones was in Public sector & rest 72 Million tonnes in private
sector.

Installed Capacity
Private
Sector
Public Sector
41%
Public Private Sector
Sector
59%

The installed capacity, Number of Retail outlets , Gas distributors of major players
of the industry as on 01.04.2009 was :

Undertaking-wise Installed Capacity

(Thousand Metric
Tonne)
Public Sector 105468
IOCL (7 Refineries) 47350
HPCL (2 Refineries) 13000
BPCL (2 Refineries) 19500
CPCL (2 Refineries) 10500
BRPL 2350
NRL 3000
ONGC-Tatipaka 78
MRPL 9690
Private Sector 72500
RIL 33000
RIL (SEZ) 29000
EOL 10500
RPL 33000
Total 177968

Company-wise Number of Liquid Petroleum

Gas (LPG) Distributors in India (In Number)
Gas As on 01.04.2009
(LPG)
Distribut
ors IOCL HPCL BPCL Total
Total 4999 2250 2117 9366
% 53% 24% 23% 100%

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Company-wise Retail Outlets of Petroleum Products

in India (In Number)
Retail
Year Outlets BPCL HPCL IOC Total
Nos. 8387 8539 18140 35066
2009 % 23.9 24.4 51.7 100

The market share of major players in terms Sales as on 01.04.2009 is tabulated

below. was : Consumers & Consumption Patterns

Sales/Consumption of Petroleum Products

and Market Share of Oil Companies in India
(Qty. ' 000 Tonne)
Imports b
% Other y Pvt.
Year S/C I.O.C BPCL HPCL s COs Parties Total
1335
2008- S/C 61363 26324 23712 2094 20106 99
09 % 45.9 19.7 17.7 1.6 15 100

Company Analysis

BPCL is a leading player in the Indian petroleum industry with market share of
16.9% in refining and 18.5% in marketing. The company is increasing its investment
in the pipelines business, to stabilise margins, and venturing into E&P business.
BPCL, along with its subsidiaries, owns three refineries with a combined refining
capacity of 30 mmtpa, and is expanding its refining capacity with a new refinery in
Bina (6 mmtpa).

In the new decade, BPCL is poised to spread its wings and become one of the
leading energy companies. These are exciting times for India and BPCL is well
placed to make a significant contribution in meeting the growing energy needs of
the country.

BPCL has evolved from being an oil refining and marketing entity to a group having
a presence, not only across the country but in several parts of the world. BPCL has
been amongst the first in India to embrace cutting edge technology in key areas of
operations and introduce products and services aimed at meeting existing and
emerging needs of the consumer.

During the last five years, there have been many major achievements. The
processing capacity of Kochi Refinery has been expanded from 7.5 MMTPA to 9.5
MMTPA. The grass roots refinery at Bina costing Rs. 11,397 crores, the biggest
project ever to be undertaken by BPCL, is ready to be commissioned. With this, the
group’s annual refining capacity will exceed 30 MMT and will give BPCL access to its
own source of products across the country.

Growth in market volumes has kept pace with the increase in refining capacity.
Entry into the upstream sector of Exploration and Production has gathered pace,
with BPCL having a presence in six countries across five continents. Results have
been very encouraging with the announcement of two discoveries of oil and gas in

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Brazil and Mozambique respectively. The foray into gas and alternate sources of
energy has been progressing smoothly.

Company Performance
 During the year 2009-10, the crude throughput at BPCL’s refineries at Mumbai
and Kochi was 20.41 MMT as against the level of 19.94 MMT achieved in 2008-
09.
 The market sales of the company increased from 27.16 MMT in 2008-09 to
27.70 MMT in 2009-10.
 BPCL’s sales turnover for 2009-10 stood at Rs. 131,499.72 crores, reflecting a
reduction of 9.55% over the previous year’s turnover of Rs. 145,392.07 crores.
However, the sales in volume terms increased from 27.16 MMT in 2008-09 to
27.70 MMT in 2009-10, registering an increase of 1.99%.
 The profit before tax for the year increased by 132.65% over the preceding year
to reach a level of Rs. 2,366.05 crores as compared to Rs. 1,004.11 crores in
2008-09.
 After providing for tax of Rs. 828.43 crores as against Rs. 268.21 crores during
the last year, the profit after tax for the year stood at Rs. 1,537.62 crores,
showing an increase of 108.94% over the level of Rs. 735.90 crores recorded in
2008-09.
 The earnings per share amounted to Rs. 42.53 in 2009-10 as compared to Rs.
20.35 in 2008-09.
 Internal cash generation during the year were higher at Rs. 1,898.10 crores as
against Rs. 1,282.29 crores in 2008-09. BPCL’s contribution to the exchequer by
way of taxes and duties during 2009-10 amounted to Rs. 26,685.75 crores as
against Rs.25,331.78 crores in the previous financial year.
 Borrowings from banks decreased from Rs. 19,242.56 crores as at 31st March,
2009 to Rs. 18,743.87 crores at the close of the current financial year.
 The total Capital Expenditure during the year 2009-10 amounted to Rs. 3,446.55
crores as compared to Rs. 2,389.34 crores during the year 2008-09
 Balance Sheet
(Rs. in Crores)
Particulars

Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

SOURCES OF FUNDS :
Share Capital 361.54 361.54 361.54 361.54 361.54 300.00
Reserves Total 12,725. 11,766. 11,315. 9,912.0 8,777.8 6,088.4
17 57 29 0 8 3
Total Shareholders Funds 13,086. 12,128. 11,676. 10,273. 9,139.4 6,388.4
71 11 83 54 2 3
Secured Loans 10,443. 3,661.6 2,730.2 2,593.9 3,071.3 1,173.4
87 0 1 6 2 2
Unsecured Loans 11,751. 17,509. 12,292. 8,235.2 5,302.2 2,708.1
33 81 17 8 8 9
Total Debt 22,195. 21,171. 15,022. 10,829. 8,373.6 3,881.6
20 41 38 24 0 1

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Total Liabilities 35,281. 33,299. 26,699. 21,102. 17,513. 10,270.

91 52 21 78 02 04
APPLICATION OF FUNDS :
Gross Block 25,412. 22,522. 21,500. 19,457. 17,376. 12,668.
52 33 93 58 84 84
Less : Accumulated 11,743. 10,556. 9,532.2 8,476.5 7,459.4 5,668.7
Depreciation 17 54 6 3 8 2
Less:Impairment of Assets 0.00 0.00 0.00 0.00 0.00 NA
Net Block 13,669. 11,965. 11,968. 10,981. 9,917.3 NA
35 79 67 05 6
Lease Adjustment 0.00 0.00 0.00 0.00 0.00 0.00
Capital Work in Progress 2,517.7 2,037.4 766.71 852.34 1,168.1 1,348.5
5 8 1 5
Investments 13,501. 18,078. 10,318. 8,294.9 3,889.3 1,677.1
33 38 21 0 7 4
Current Assets, Loans &
Advances
Inventories 12,028. 6,823.9 10,603. 8,661.2 9,044.7 6,258.5
86 2 84 6 7 6
Sundry Debtors 2,662.6 1,425.6 1,608.6 1,518.7 1,315.8 854.58
8 7 1 3 9
Cash and Bank 342.36 441.55 961.59 863.97 492.10 352.39
Loans and Advances 8,550.0 6,597.2 6,533.3 2,586.9 2,448.2 2,915.7
3 8 2 0 3 2
Total Current Assets 23,583. 15,288. 19,707. 13,630. 13,300. 10,381.
93 42 36 86 99 25
Less : Current Liabilities and
Provisions
Current Liabilities 14,550. 11,118. 13,594. 10,200. 8,894.4 8,820.9
56 87 11 62 8 8
Provisions 2,580.5 1,712.4 986.26 1,073.1 512.49 347.01
9 4 6
Total Current Liabilities 17,131. 12,831. 14,580. 11,273. 9,406.9 9,167.9
15 31 37 78 7 9
Net Current Assets 6,452.7 2,457.1 5,126.9 2,357.0 3,894.0 1,213.2
8 1 9 8 2 6
Miscellaneous Expenses not 0.00 0.00 0.00 0.00 0.00 0.00
written off
Deferred Tax Assets 1,044.1 623.57 303.87 298.16 216.04 129.71
8
Deferred Tax Liability 1,903.4 1,862.8 1,785.2 1,680.7 1,571.8 1,098.7
8 1 4 5 8 4
Net Deferred Tax -859.30 - - - - -969.03
1,239.2 1,481.3 1,382.5 1,355.8
4 7 9 4
Total Assets 35,281. 33,299. 26,699. 21,102. 17,513. 10,270.
91 52 21 78 02 04

 Income Statement
(Rs. in Crores)

Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

INCOME :
Sales Turnover 131,499 145,392 121,684 107,452 85,149 63,857.
.72 .07 .07 .27 .62 00
Excise Duty 11,065. 11,329. 11,475. 10,895. 9,616. 5,979.6
33 13 94 42 33 0
Net Sales 120,434 134,062 110,208 96,556. 75,533 57,877.
.39 .94 .13 85 .29 40

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Other Income 2,240.2 1,538.7 1,520.8 752.49 493.14 511.72

4 6 0
Stock Adjustments 3,772.4 - -392.50 205.44 754.40 1,586.2
5 1,565.3 5
9
Total Income 126,44 134,03 111,33 97,514 76,78 59,975
7.08 6.31 6.43 .78 0.83 .37
EXPENDITURE :
Raw Materials 113,671 121,804 101,586 88,593. 71,350 54,495.
.34 .74 .56 77 .42 57
Power & Fuel Cost 237.12 67.17 61.75 66.64 47.71 19.69
Employee Cost 2,139.6 1,883.5 1,296.1 1,002.8 881.09 792.52
3 7 6 8
Other Manufacturing Expenses 838.11 775.26 609.06 586.54 493.12 373.83
Selling and Administration 3,025.2 2,767.2 2,413.4 2,216.6 1,943. 1,741.4
Expenses 3 0 2 4 76 1
Miscellaneous Expenses 1,917.8 2,493.7 1,002.4 844.52 642.55 460.36
3 6 1
Less: Pre-operative Expenses 0.00 0.00 0.00 0.00 0.00 0.00
Capitalised
Total Expenditure 121,82 129,79 106,96 93,310 75,35 57,883
9.26 1.70 9.36 .99 8.65 .38
Operating Profit 4,617.8 4,244.6 4,367.0 4,203. 1,422. 2,091.
2 1 7 79 18 99
Interest 1,010.9 2,166.3 672.47 532.69 247.62 140.11
5 7
Gross Profit 3,606.8 2,078.2 3,694.6 3,671.1 1,174. 1,951.8
7 4 0 0 56 8
Depreciation 1,242.3 1,075.5 1,098.2 904.11 768.01 596.04
2 3 1
Profit Before Tax 2,364.5 1,002.7 2,596.3 2,766. 406.5 1,355.
5 1 9 99 5 84
Tax 1,130.1 495.69 889.73 923.04 -1.01 243.41
8
Fringe Benefit tax 0.00 13.25 15.30 11.73 13.38 NA
Deferred Tax -303.25 -242.13 110.80 26.75 102.53 146.63
Reported Net Profit 1,537.6 735.90 1,580.5 1,805.4 291.65 965.80
2 6 7
Extraordinary Items -113.64 -265.17 28.95 -28.40 1.92 -22.19
Adjusted Net Profit 1,651.2 1,001.0 1,551.6 1,833.8 289.73 987.99
6 7 1 7
Adjst. below Net Profit 0.00 0.00 0.00 0.00 2,084. 0.00
32
P & L Balance brought forward 76.37 0.00 0.00 2,682.9 628.17 0.00
1
Appropriations 1,432.9 659.53 1,580.5 4,488.3 321.23 337.63
3 6 8
P & L Balance carried down 181.06 76.37 0.00 0.00 2,682. 628.17
91
Dividend 506.16 253.08 144.62 578.46 90.39 375.00
Preference Dividend 0.00 0.00 0.00 0.00 0.00 0.00
Equity Dividend % 140.00 70.00 40.00 160.00 25.00 125.00
Earnings Per Share-Unit 40.52 19.48 43.46 47.40 9.30 30.46
Earnings Per Share(Adj)-Unit 40.52 19.48 43.46 47.40 9.30 30.46
Book Value-Unit 361.97 335.46 322.97 284.16 302.60 212.95

Ratio Analysis

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Years
Mar-10 Mar- Mar- Mar- Mar-
09 08 07 06
Debt-Equity 1.7 1.5 1.2 1.0 0.8
Ratio
Current Ratio 0.6 0.6 0.7 0.7 0.8

Fixed Assets 5.5 6.6 5.9 5.8 5.7

Inventory 14.0 16.7 12.6 12.1 11.1

PE 12.8 19.3 9.5 6.4 45.8

EBIDTA 4,617 4,244 4,367 4,203 1,422

.8 .6 .1 .8 .2
Div Yield 2.7 1.9 1.0 5.3 0.7

PBV 1.4 1.1 1.3 1.1 1.4

Intrinsic Value of the Stock

The intrinsic value of the stock is calculated by relative P/E method.

YEAR FY 2010 FY 2009 FY 2008 FY 2007 FY 2006

P/E 12.8 19.3 9.5 6.4 45.8

 Avg. P/E = (12.8+19.3+9.5+6.4+45.8 )

5
= 18.76

 Current EPS = 40.52

 Intrinsic value of the stock = 18.76 x 40.52

= Rs 760.15

 Current Market Price = Rs 697.0 (as on 20/08/2010)

 Since the Intrinsic value > current value, the stock is under valued & it should
be hold.

Conclusion

BPCL is an integrated refining and marketing company, engaged in selling petroleum

products, and has a higher presence in metros than peers. This gives it the advantage
of greater margins, higher growth rate, and lower competition. The company’s IT
infrastructure and loyalty programs add to its competitive advantage. BPCL’s
expansion of its current refining capacity removes product supply risks.

The gradual phasing out of auto-fuel subsidies and continued government support (in
the form of oil bonds) will help reduce under-recoveries of oil marketing companies.

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