Large capex a key concern for BPCL amid crude oil price uncertainty

State-run refiner Bharat Petroleum Corporation (BPCL) reported operating and net profits below expectations in the first quarter (Q1) of 2025-26 (FY26), weighed down by lower gross refining margins (GRMs) of $4.9 per barrel. However, blended marketing margins at ₹8.3 per litre were 75 per cent higher year-on-year (Y-o-Y). Refining throughput and marketing volumes were in line with estimates.

 

The Union Cabinet has approved ₹30,000 crore in liquefied petroleum gas (LPG) compensation for oil marketing companies, to be paid in 12 tranches over an undisclosed time frame. BPCL’s share will be roughly 25 per cent, or around ₹7,500 crore. Analysts conservatively assume the company will receive about half that amount in this financial year (FY-26), which could lift book value per share by around 5 per cent.

 

Marketing margins for motor spirit (MS) and high-speed diesel (HSD) have recently eased to an average of ₹11.3 per litre and ₹6.7 per litre, respectively, in the second quarter (Q2), compared with ₹12.7 and ₹11 per litre in Q1. Even so, they remain high in absolute terms.

 

LPG underrecovery per cylinder is expected to shrink to ₹30 by September 2025 (from ₹150 in Q1FY26). This keeps the marketing segment strong, though refining had a weak quarter, dragged by an inventory loss of $3.5 per barrel.

 

In Q2 to date, HSD cracks have risen 34 per cent quarter-on-quarter to $13.3 per barrel, while MS cracks have fallen 23 per cent to $8.7 per barrel. Fuel oil cracks have turned negative, averaging (minus) $4.8 per barrel. 

 

In Q1FY26, operating profit stood at ₹9,660 crore, up 71 per cent Y-o-Y, including a marketing inventory loss of ₹840 crore and a foreign exchange gain of ₹20 crore. LPG underrecovery amounted to ₹2,080 crore (₹3,220 crore in the fourth quarter). Net profit came in at ₹6,120 crore.

 

As of June 2025, BPCL carried a cumulative negative net buffer of ₹12,520 crore due to LPG underrecoveries (versus ₹10,450 crore in March 2025). Higher other income was supported by strong interest earnings from surplus funds. Group-level debt stood at ₹3,950 crore as of June 30, with net debt-to-equity at 0.25x and surplus funds of ₹1,760 crore.

 

Capital expenditure (capex) is ramping up. FY26 guidance is ₹20,000 crore, of which ₹2,380 crore was spent in Q1. Breakup: ₹14,000 crore for marketing, ₹6,500 crore for refining and petrochemicals, ₹4,000 crore for city gas distribution, ₹2,500 crore for Bharat PetroResources (BPCL’s upstream subsidiary), and ₹1,400 crore for LPG.

 

Capex guidance for FY27 is ₹22,000–25,000 crore, with a further ₹35,000 crore planned across 2027-28 (FY28) through 2028-29 (FY29). The debt-to-equity ratio is expected to peak at 1x during FY28–29.

 

Inventory levels were elevated in Q1 at 2.9–3 million tonnes (mt) of crude oil (versus the usual 2.2–2.3 mt), leading to higher inventory losses. Russian crude accounted for 34 per cent of throughput in Q1 but slipped in June, with discounts narrowing to $1–1.5 per barrel. The LPG underrecovery per cylinder fell to ₹30.

 

BPCL’s reported GRM of $4.9 per barrel was below estimates. Refining throughput was 10.4 mt (up 3 per cent Y-o-Y), while marketing volumes excluding exports were 13.6 mt (down 1 per cent Y-o-Y). The blended marketing margin (including inventory) remained strong at ₹8.3 per litre.

 

BPCL’s GRMs continue to outpace Singapore benchmark margins thanks to refinery optimisation, product distribution efficiencies, and crude procurement strategies. Advanced processing capabilities at Bina and Kochi enable the use of high-sulphur crude.

 

With cheaper crude, there is a possibility of retail price cuts or higher excise duties. Risks remain if Russian imports are reduced and replaced with costlier crude. The heavy capex cycle also looms as a concern.