Bharat Petroleum Corporation Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. We have our first question from the line of Probal Sen from ICICI Securities. Please go ahead.

I just have a couple of questions. Thank you for the extremely descriptive run-down of the business outlook and everything else. On the refining front, sir, the performance of the Bina Refinery has been especially strong. Can we just get a broad sense of the product slate of this refinery, just in terms of what is the yield of diesel and petrol ATF? Some of the major products, if you can get any color. That was my first question.

In respect of Bina, the product slate, for MS it is 15.5%, diesel is around 53% to 54%, ATF is around 8%.

Sir, just to try and understand, I mean, just the diesel, I mean, yield itself is responsible for the clear outperformance of this refinery versus virtually I think any refinery that is there in the country today. Anything you can sort of give us as a flavor of why this refinery is doing so well.

Two major contributing factors for this Bina higher GRM. One is the crude mix, if you see, the majority of the crude is coming from Russian Urals side. High sulfur crude we are processing in Bina as compared to any other refineries. And secondly, the product slate, if you compare the HSD streams in Bina is much, much higher than compared to other refineries. And you know that diesel cracks were very good during the current financial year. So, these two have helped actually Bina generating higher GRMs.

Sir, just to get a broad sense in terms of overall numbers, was the percentage of Russian crude slightly lower in this quarter versus Q3? Or has it been, I believe last quarter also you have given a broad guidance that I think was around 25 % to 30% of our overall slate. Is it similar this quarter?

If you see for FY ‘23-’24, our imported crude is around 36 MMT. Out of 36 MMT, around 39% we have procured from Russia. It is containing like Urals, ESPOs, CPC grades. We are expecting this year also similar grades still available from Russia. Then for ‘24-’25 also Russian crudes can play a significant role in total throughput.

And on the marketing front, sir, you know, our increased crude prices, correct me if I am wrong, we are not really making any significant margins from retail fuels. So , what is the thought process about looking at the price or at the moment we are comfortable with our overall margin mix? How should we look at this?

Even earlier also we said as long as crude prices are hovering at 80 to 85 range, so we are comfortable even at this pricing. The margins may be short period of time, the margins may be squeezed for a short period of time. But as long as crude is hovering around $80 to $85, we are reasonably, we can generate the marketing margins.

Last question from my side , if I may. In terms of Mozambique, sir said that it could be sort of the force majeure could be lifted and the project could be restarted. Is it reasonable to assume that restart will happen sometime over the next 12 months or in FY ‘25, we can see a resumption of operations or rather resumption of at least commissioning activity on the Mozambique asset?

Probal, we are very hopeful that it will restart during this year. We are also very keen to see it and ensure it starts, but we are very hopeful this will start this year.

Thank you, sir. We have our next question from the line of Amit Murarka from Axis Capital. Please go ahead.

On CAPEX, could you spell out the target for FY ‘25 and broadly how will the CAPEX pan out over the next few years given the target of 1.5 lakh crore over five years?

For FY ‘24-25, we are estimating our CAPEX outlay will be around 15,000 to 16,000 crore. So, major amount will go around 4,200 will go to for refinery and petrochemical projects. And for marketing, we are going to allocate around 7,000 crore for various projects, mainly including the CGDs and our existing projects. And BPRL, we are planning to increase around 2,000 to 2,500 crore of equity during this year. So, with this, the total capital outlay we are planning for FY ‘24-’25 will be around 15,000 to 16,000 crore.

And how will that scale up to, let’s say, ‘26-27?

We are expecting ‘27-’28 the scaling up will happen for Bina project. Maybe even for next year also, the CAPEX will be maybe around 16 to 20,000 crore range . The major CAPEX spending will happen for these major projects will be in ‘27-’28 onwards. The peak CAPEX will happen from ‘27-’28 onwards.

But I am just wondering like that still would not add up to the 1.5 lakh crore number I think what.

Over a period of five years we are planning , you know, the projects what we have announced already major projects for petrochemicals , two projects we have announced for 49,000 crore plus 5,000 crore and the CGD in various licensing we got around 52 CGD licensing areas where we have declared a CAPEX outlay of 25,000 crore in the first five years and over a period of the life will be around 45,000 crore. These two are the already announced projects. And there are small refinery projects, ongoing projects and marketing side ongoing projects, and we are expecting at least 2 gigawatt of renewable around 10,000 crore. With all this actually our capital outlay will be around 1.7 lakh for a period of maybe five years or five-and-a-half years, but otherwise our capital outlay we have a worked out it will be around 1.7 lakh crore.

This is all till FY ‘28, right? I mean, this, all of this CAPEX outlay?

‘29’ starting from ‘24-’25’ five years to FY ‘29.

Thank you, sir. We have our next question from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead.

Two questions from my. First was in terms of the petrochemical project at Kochi, can you just talk us of how has been the progress in terms of margin contributing in this year in this quarter and any improvement in terms of the overall profitability of that project? And the second one was more related to renewables. You are talking about 10 -gigawatt target in terms of renewable capacity. Can you just walk us through how it will lower your operating costs at the refinery level once you have this 10 gigs of capacity coming in in terms of renewables?

The first question related to the petrochemicals plants at Kochi Refinery, previous year the operating capacity was 60%, we have operated all these plants . This year it was 70%. The total production of the previous year, it is 197.15 metric ton TMT and currently it is 232. There is a significant increase of product operating capacity utilization. The gross margin during this year from petrochemicals is around 560 crore as compared to 364 crore the previous year. And the second question regarding that renewable ambition. We have an ambition of around 10 gigawatt over a period of the next 15 years. By 2040 at least we want to create a 10 gigawatt of renewable capacity. It will significantly help in cost efficiency in terms of the energy consumption at our refinery. Today if you see the RE, the power generation equalizer, the power generation is coming around Rs. 2.6, Rs. 2.7. Even including the landing, it will be around Rs. 5 or Rs. 5.20. So, with this, there will be significant savings. We have not worked at this point of time, but when we create this particular portfolio of 10 gigawatt renewable, it will have a significant impact on energy savings for our refinery.

Sir, just to follow up on that point, can you just tell us what is your total power requirement across the BPCL overall today, across three refineries and everything else that you use power for?

We will share it separately.

Thank you. Ladies and gentlemen, due to time constraint we will restrict questions for participants to a strictly one. We have our next question from the line of Sabhri from Emkay Global. Please go ahead.

Just one question, regarding refining capacity, I mean Bina expansion is the only one, right? Are you planning something else also other than that?

Yes, one is we have declared about Bina expansion, and we are working towards some sort of creeping expansion from the existing refineries where maybe respective refineries can take up additional 1, 1.5 additional capacities we can create by debottlenecking of existing units. So, that we are working on it . That is the reason in the next couple of years we want to take it out of refining capacity from the existing level to 45 MMT including Bina. The main capacity expansion happens for Bina and all of the refineries, the capacity expansions will be maybe around 1.5 to 2 MMT range.

We have the first right of refusal for entire volume The commercial terms are not yet finalized, but otherwise we have the first right of refusal for the entire volumes.

So, if you have any demand from the marketing side, NRL has to provide you first.

Yes, right.

Thank you, sir . We have our next question from the line of Varatharajan from Antique Stock Broking. Please go ahead.

Just wanted to check on this Brazil things, like, what exactly transpired, and why we are writing off at this point in time ? And is there a breach of contract there or what was the reason behind that?

Yes, we have one investment in BMC-30, one of the block in Brazil. In fact, FY ‘21-’22, it went to a dispute with the operator . So, accordingly, we have filed our appeal in the International Court of London. Last month actually unfortunately, we have not received any favorable order. The order has gone against Bharat Petroleum. So, with that background, whatever value we had in our books, we have impaired, but however, yesterday is the last day for filing an appeal before the London High Court. Accordingly, we have filed an appeal. There are two disputes . One is on the data sharing by the operator . They have not provided sufficient data to take any commercial call on that . Second is when they have demanded the handling charges for crude, which was significantly higher as compared to the market rates. So, that is the reason we have not participated in the ballot for development, but subsequently it went to the dispute. They have declared an exclusive operation without our consent. Accordingly, we went to arbitration, and now the case is pending before the Appellate Authority in the London High Court.

And this write-off of 1,700-odd crores, out of the total investment in Brazil, how much does it constitute?

This particular block, we had an investment of 120 million, means roughly around 1,100 crores our investment size, but in the total impairment, the major factor is BMC-30 only.

Thank you, sir. We have our next question from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.

Sir, if you can give us some direction in terms of how you see the standalone CGD ramp up in terms of CNG stations, volumes and capitalization of assets. That will give us some sense in terms of how the revenues will shape up and when do you expect the CGD business to be visible in terms of the impact on your standalone, top line and EBITDA?

If you see the CGD network, in fact already we have crossed the network, CGD fuel stations around 2,000 stations we have crossed. Even this year also we are planning around 450 CGD stations. So, the network expansion is happening in a rapid pace. For FY ‘24-’25, we are allocating a capital outlay of around 2,500 crore for further expansion. In terms of the market sale point of view, around 73 TMT we have sold through CGD network. The margins are good, and we are hoping the volume will pick up further with the help of the network expansion and the stable prices of gas prices, it will help.

So, these numbers you have said, are they all in the standalone GAs or do they also include your CNG?

Both put together. Both put together because in our network, in our network means where we have our retail outlet, where we have the CNG stations, some are within our GAs, some are the geographical area licensing is with others, but where the marketing stations are with our retail outlets.

If I may ask in the CGD, can you give us the numbers separately for the 25 GAs you have started in terms of the number of customers, number of...

We will provide separate break up.

Thank you, we have our next participant from the line of Puneet from HSBC. Please go ahead.

If you can talk about how much LNG or gas you are currently consuming and what is the peak volume consumption that you expect from your refineries?

Yes, for ‘23-’24, we have two refineries, we are consuming mainly RLNG. Around 400 TMT, 420 TMT for K ochi Refinery, around 300 TMT for Mumbai Refinery. Both put together our consumption during this year is around 733 TMT.

And once Bina comes, then what should be the number?

Bina, at this point of time, we have not configured, the base design is not configured for RLNG consumption. Only it’s an optional flexible fuel. At that point of time, after commissioning, we have to wait and see how much gas we can pump it for, either fuel or feed

Existing refineries we can go up to a little bit more compared to based on the pricing. For example, if the Naphtha prices are costlier than RLNG, then we can shift our consumption some small quantity of Naphtha, we can shift it to the RLNG or sometimes RLNG is costlier then we shift it, very small quantity. Beyond that, we can take more RLNG. It depends on the commercial for Naphtha.

Thank you, sir. We have our next question from the line of Somaiah V from Avendus Spark. Please go ahead.

So, first question is on the Russian crude. So, you said 39% of the total imports. So, would it be possible to give at a refinery level, Bina, Kochi and Mumbai of the total 15 million tons roughly that you have indicated?

Generally, we don ’t share individual refinery w ise break-up, but overall total imports 39% we have consumed in FY ‘23-’24. I can give an indication Bina will be highest in terms of the percentage, Kochi will be next, and the lowest percentage will be Mumbai refinery.

So, second question, given that the product cracks and the crude sourc ing benefits have been quite volatile. So, what do we look at as a steady state GRM when we are going for, I mean 1.8 lakh crores of CAPEX in next four, five years, what is the kind of steady state GRM you think this business can give us which can help us in cash flows?

Very difficult to say, give any guidance for the GRM because entirely it depends on the crack movements, international crack movements. So, the last two years was very good in terms of the refining margin side, but recently in the last couple of months, the cracks have started becoming moderated. Even if you take a 10 -year average crack, it is very difficult to take a one -year average crack or two -year average crack . Even a 10-year average crack, even if you take our GRM, so maybe if it is in the range of $6 to $8, so whatever our CAPEX outlay when we have projected at 1.7 lakhs crore with a peak debt equity level of around 1, we are comfortable. That too broadly we are looking at it.

With Bina Refining expansion, when it is expected to come and when it is coming online, the existing ops will be taking, I mean, will be impacted or is it, how do we look at it?

No, it is a completely new complex petrochemical complex. So, we are expecting FY ‘28, ‘29 the units will be commissioned. That is what we are expecting. I don’t think it will have any impact on the existing refining or whatever throughput of products for Bina, it will continue. Additionally, it may give around 600 to 700 TMT of products, petroleum products beyond the petrochemical.

Thank you. We have a next question from the line of Manikantha Garre from Franklin Templeton India. Please go ahead.

Sir, wanted to check in your opening remarks , you mentioned that you are interested in LNG infrastructure facilities also. I was wondering, are you suggesting that along with the investment which you already got in Petronet LNG you are looking to invest in some other terminal ? Is there some stake acquisition there or do you want to set up a terminal on your own? Is that what you are suggesting there?

See, we are looking at opportunities and we will evaluate it and take it as it comes.

So, both Greenfield and equity investment is what you are looking at?

Yes, both options. All options we are looking at it seriously and if something comes our way, we will look at it. We are open to suggestions.

And what would be your total gas consumption across all businesses that you have got? I hear you giving number for both the refineries , but what would be your total gas consumption as of today?

Our total gas footprint will be around 1.5, 1.6 MMT including the refinery consumption, CGD network, everything put together as of current levels.

Total footprint. And we have long-term agreements of around 2.9. We have signed already gas agreements.

Thank you. We have our next question from the line of Yogesh Patil from Dolat Capital. Please go ahead.

Sir, if you could share the crude inventory gains and the product inventory gain numbers for this quarter and whole year, that would be helpful. And the second one is, if possible, can you share the percentage of Venezuelan crude you have processed during the quarter and which refinery can process the Venezuelan crude?

Venezuelan crude actually we have not processed anything for our refineries. Secondly, in terms of the inventory gain losses, we have not calculated anything separately for crude inventory gain losses in the GRM because even earlier also we have clarified that our average inventory will be less than 30 days for crude. In fact, most of the contract is the average pricing is monthly average. So, then there won’t be any significant inventory gain losses on account of inventory holding of crude. For marketing already, we have given in our handout. For the full year, the marketing inventory losses are around 765 crore for the quarter and for the full year 707 crore for the full year losses both.

Sir, you mean to say $12.5 per barrel GRM of the quarter does not include the inventory gains. Is that a fair assumption?

There won’t be any inventory gain losses there. Even if there is any gain losses, they are not significant. We don ’t calculate separately. Once again, I am clarifying because our average inventory is less than 30 days, whereas our pricing is 30 days average. So, it will not have any significant inventory gain losses in the GRMs.

And the last one, sir. In this quarter, in our reported GRM, we have seen a sharp fall in the premium over the Singapore GRM. So, what would be the major reason? That ’s the one question. And for the period of FY ‘25, how much premium over the Singapore GRM one should build in for the projection?

So, I cannot give any guidance how much we can build in the Singapore GRM sort of as a premium. We can clarify how the Indian refinery, BPC L refinery GRMs are more than the Singapore GRMs, mainly two r easons. Our entire throughput processing, the Russian crude basket is compared to significantly higher. And secondly, if you see the product portfolio, our diesel stream is bigger as compared to what is the basket in Singapore GRM. So, these two are the main reasons. And the future, very difficult to say how the cracks will move, how the percentage of crude and what is the commercial terms available for Russian crude. Based on that, we can work out what would be the premium. Otherwise, on a standardized basis, very difficult to say how our GRMs, what premium we can work with the Singapore GRMs.

But, sir, in the last few quarters, that premium has started falling. So, that’s my question. So, in the recent quarter, quarter four FY ’24

It actually depends on the cracks. If you see the d iesel cracks compared to Q3, Q4 of previous year, the current cracks are significantly eroded. So, you may not see that much of premium compared to Singapore GRM with our refinery GRMs as compared to previous years. Since the cracks have come down, so maybe the premiums also will be lesser.

So, the Kochi refinery was expected to go in maintenance in September -October. So, is there anything similar planned for the Mumbai refinery?

Yes, we have certain units we are planning a shutdown in the month of July and August Q2, but the period may be around, how many days?

30 days.

But any specific sections which will be undergoing maintenance?

Yes, Kochi CDU is going. CDU2, which is a smaller capacity train and Mumbai Refinery, there are certain units, NHGU and HCU, we are planning for shutdown.

And for the Mumbai one, which you are talking about in July, August?

Yes, Mumbai only, that is what I am saying Mumbai.

Thank you. We have our next question from the line of Nitin Gandhi from Inoquest Advisors. Please go ahead.

Sir, with the sanctions again st Russia easing out and other things, global condition improving, do you expect the discount which we get in last year to comparatively be less and margins to be impacted?

No, compared to last year, actually last year it was in oversupply zone of Russian crude, but now it is not in oversupply zone, the demand supply for Russian crudes, it is moderated. So, we are expecting moderated discounts only, not a very aggressive discount for Russian orders.

How much is the average discount for last year?

It all depends on the consignment-to-consignment, because generally we procure on spot basis just two months in advance. So, every cargo, every trader, every cargo wise, it varies. Earlier, we used to get last year, maybe around $8 to $10. Maybe now we can give a range of around $3 to $4 or $3 to $6 range.

So, if compared to 39% of supply last year, are we expecting somewhere this time around 25%?

As of date, we are for seeing we will get the Russian supplies, but the only thing is most of the Russian supplies are not on term basis . It is on the spot basis. So, every two months, M-2 only we can plan it. If there is no new geopolitical tensions or there is no new issues, at least we are estimating the supplies will continue at similar levels.

So, for the April till for the next two months average, will we be having at least 25% supply or it will be less than that?

Yes, we can assume.

Thank you. We have a last question for today from the line of Vishnu Kumar from Avendus Spark. Please go ahead.

Sir, a couple of months ago, we had a lot of articles saying that the Russian cr ude could not, I mean, in the High Seas, a lot of ships were docking and could not enter the Indian shores. Any particular reason why we were not able to take it and is that problem resolved?

Yes, there will be problems and there will be solutions. So, it is not that it is smooth ride, but we are getting the supplies. It is not that we are stopping any supplies. Maybe sometimes there may be a delay of loading and there may be a delay of unloading or transit t imes. But overall, if you see, the supplies are continuing.

Is that something to do with payment related problems or any other additional shipping related sanctions that are coming up?

Both, because if you see , regularly there will be some parties that are added into the sanction list. So, it creates some problems. So, it is a continuous process. It is not that the sanction list is frozen for a particular period of time. So, every three months or four months some new entities are added into the sanction list. It creates a little bit of problems.

Just one final question on the heavy crude sourcing that we do outside of Russian crude. Are the other grades that we are sourcing either from Middle East or are they at the premium to the normal benchmark? At least that is something we see. So, material delta over benchmark, let’s say, a couple of years ago to now.

No, as of date Russian Urals are commercially comparably better than any other grades. So, that is our preference will be Russian grades at this point of time.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Nitin Tiwari for closing comments.

Thank you. On behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your line.