BPCL has managed to report a net profit for the third quarter after accounting for expected oil bonds and subsidy share by oil & gas producers like ONGC and Gail India. Though the stock has gained recently after the substantial fall in crude oil prices, future outlook is still very uncertain because of volatile oil prices and unpredictable government decisions on fuel pricing.
For the quarter ended 31 December 2006, net profit was at Rs 303.5 crore, or Rs 8.4 per share, as compared to a net loss of Rs 1,024.2 crore for the previous year quarter. Net revenues increased 28.39 per cent to Rs 24,205.6 crore from Rs 18,853.4 crore a year ago. Results include the financial performance of Kochi Refineries, which was merged with the company.
Volume sales during the April-December 2006 period increased to 17.14 million tonnes from 16 million tonnes sold during the previous year period. BPCL achieved strong volume growth in aviation fuel, LNG and diesel.
Operating profit, excluding other income, for the quarter was at Rs 689.2 crore as compared to an operating loss of Rs 910.4 crore for the previous year period. Gross refining margins at the company's Mumbai refinery was $3.14 per barrel while for the Kochi refinery it was $2.2 per barrel. Refining margins of PSU refiners are substantially lower than that of Reliance Industries, which achieved a margin of $11.7 per barrel for the same quarter.
Cost of inputs and products purchased for resale increased 19.62 per cent over the previous year period. Staff costs went up by 57.15 per cent while other operating costs increased very marginally.
During the quarter, BPCL has provisionally accounted Rs 1,135 crore for issuance of special oil bonds by the government to compensate for the under-recoveries in retail fuel sales. The company has also provisionally accounted Rs 559 crore towards the share of upstream oil companies in subsidy sharing. Subsidy claim from the government on sales of domestic LPG and kerosene has been provisionally accounted at one-third the rates approved for earlier years.
Interest costs increased substantially to Rs 129.8 crore from Rs 58.5 crore a year ago while depreciation charges were higher by 73.34 per cent at Rs 248.4 crore. Tax provisions also increased substantially to Rs 156.2 crore from just Rs 2.7 crore a year ago. The substantial jump in other income to Rs 148.7 crore from Rs 90.7 crore also helped BPCL's bottom line.
The decline in crude oil prices should help improve BPCL's bottom line substantially during the current quarter, though gains may be offset modestly by lower refining margins. However, there is always the threat of a further reduction in retail fuel prices. Political pressure is mounting on the government to cut prices and if crude prices decline from the current levels of $55 per barrel, that is a real possibility.