>Bharat Petroleum Corporation

Positive GRM due to inventory gain…
Bharat Petroleum Corporation (BPCL) declared its quarterly results with revenues at | 54548.4 crore (our estimate: | 62925.3 crore) and a loss of | 8836.8 crore (our estimated loss: | 1541.9 crore). The reason for such a huge loss was no government compensation towards gross under recovery incurred in Q1FY13. BPCL had a net under-recovery of | 7944 crore during Q1FY13. We expect gross under-recoveries at ~| 1,86,142 crore and ~| 1,98,100 crore in FY13E and FY14E, respectively (our assumption for the exchange rate is | 54/dollar and Brent crude oil is $110/barrel). We expect the net under-recovery of BPCL to be at | 2315.4 crore and | 2383.1 crore in FY13E and FY14E, respectively, while revising our assumption of the share of downstream companies to 5% of gross under-recovery. We recommend a BUY rating on the stock with a price target of | 401.

􀂃 GRM surprise
The company reported a positive GRM of $2.6/barrel in Q1FY13, much better than its OMC peers, HPCL and IOCL, which reported negative GRMs. The positive GRM was mainly on account of inventory gain of | 130 crore. We estimate GRMs at $4.1/barrel for FY13E and FY14E, respectively.

􀂃 E&P story intact
The recent discovery at Atum (10-30 tcf of recoverable gas resources) in Mozambique by the BPCL-Anadarko consortium, in addition to exploration success at Golfinho and Prosperidade Complex, adds great value to the company. The consortium expects gas production in Mozambique to start in 2018. We have valued the Rovuma basin (Mozambique) at | 143.8/share and BM-C-30, Campos Basin (Brazil) at | 22.8/share. We recommend a BUY rating on the stock with a price target of | 401 (valuation based on average of P/BV multiple: | 411 per share and P/E multiple: | 390 per share).