Bharat Petroleum's strong fourth-quarter marketing is overshadowed by fuel losses and rising capex

Investment View and Valuation

In its May 20, 2026, 4QFY26 results update, Motilal Oswal Financial Services Limited retained its Neutral rating on Bharat Petroleum Corporation Limited (BPCL). The broker characterised the near-term earnings outlook as weak and flagged rising capital intensity, despite a strong fourth-quarter operating performance.

Motilal Oswal's sum-of-the-parts target price of Rs 265 per share implied 10 per cent downside from the report's Rs 294 CMP.

Strong 4QFY26 Performance

BPCL's 4QFY26 result exceeded the broker's earnings expectations, principally because blended gross marketing margins were substantially stronger than anticipated. Reported gross refining margin was US dollars 17.9 per barrel, broadly in line with Motilal Oswal's US dollars 18 per barrel estimate.

Marketing margin including inventory gains was Rs 5.6 per litre, compared with the broker's Rs 1.3 per litre estimate. Inventory gains contributed Rs 0.8 per litre. Standalone EBITDA of Rs 110 billion was 34 per cent above estimate, while standalone adjusted PAT of Rs 64.5 billion, adjusted for impairment, was 31 per cent above estimate.

Clean PAT, adjusted for forex loss, marketing inventory gain and impairment loss, was Rs 62 billion, 25 per cent ahead of the broker's estimate. Fourth-quarter refinery throughput of 10.4 million metric tonnes, down 2 per cent year on year, and marketing volume excluding exports of 13.9 million metric tonnes, up 3 per cent year on year, were in line with estimates.

Reported Adjustments and Balance Sheet

Reported earnings included a Rs 9.4 billion forex loss and a Rs 12.8 billion marketing inventory gain. BPCL also recognised a Rs 43.5 billion impairment on its investment in wholly owned upstream subsidiary Bharat PetroResources Limited, whose gross carrying value was Rs 154.3 billion, due to changed block prospects.

The Ministry of Petroleum and Natural Gas had approved Rs 75.9 billion of compensation for domestic LPG under-recoveries through March 31, 2026. BPCL recognised three monthly instalments totalling Rs 19 billion during 4QFY26. As of March 2026, BPCL's cumulative negative net buffer from LPG under-recovery was Rs 123.2 billion.

Standalone BPCL became net-cash-positive, with cash and bank surplus of Rs 64 billion over borrowings.

Crude Sourcing and Refining Operations

Management commentary indicated continued crude-basket diversification. Russian crude represented 31 per cent of 4QFY26 crude intake versus 25 per cent in 3QFY26, and was then 40-45 per cent of the current basket. Crude supply was secured through July 2026.

BPCL's FY26 refinery capacity utilisation was 116 per cent, with a gross refining margin of US dollars 11.74 per barrel. The company's Bina and Kochi refinery processing capabilities allow 100 per cent high-sulphur crude and 50 per cent Russian crude processing, supporting a premium to Singapore refining margins.

Domestic Volume Growth and Network Expansion

BPCL's FY26 domestic sales volume grew 3.5 per cent to 54.18 million metric tonnes, led by petrol growth of 5.7 per cent and ATF growth of 11.4 per cent.

• The company added 1,691 retail outlets during FY26, taking the total to 25,223.
• Average throughput was 143 kilolitres per outlet per month in 4QFY26.
• Gas sales rose 26.5 per cent to 2.29 million metric tonnes.
• City gas distribution volume grew 62.1 per cent to 248 thousand metric tonnes.
• BPCL fully utilised its booked Petronet LNG regasification capacity for the first time.

Fuel Under-Recoveries and Capex Risks

The principal risks to the broker's outlook are widening fuel under-recoveries and a new capex cycle. Domestic LPG losses had widened to around Rs 670 per cylinder in May 2026, versus around Rs 170 in April and more than Rs 80 in 4QFY26.

Even after a Rs 4 per litre petrol and diesel retail price increase, gross auto-fuel marketing losses remained Rs 10-20 per litre. Motilal Oswal saw scope for a further Rs 2-3 per litre price rise and considered government support possible if losses persisted.

The Bina petrochemical and refinery expansion was 23 per cent complete versus 32 per cent planned, with geopolitical and supply-chain disruption causing delays. Management nevertheless expected major projects to remain within approved costs plus or minus 10 per cent. FY27 capex is targeted at Rs 250 billion, following Rs 204 billion in FY26.

Earnings Outlook

Motilal Oswal forecasts consolidated FY27 EBITDA of Rs 186 billion and adjusted PAT of Rs 100 billion, versus Rs 428 billion and Rs 261 billion respectively in FY26. The broker expects a recovery to Rs 270 billion EBITDA and Rs 157 billion adjusted PAT in FY28E.

The assumptions include gross petrol and diesel marketing-margin losses in 1QFY27 and 2QFY27, LPG under-recoveries, and normalisation of refining margins in the second half of FY27 through FY28.

Valuation Framework

BPCL traded at 1.3 times one-year-forward price-to-book, below its 10-year average of 1.8 times. The broker's sum-of-the-parts valuation applies 5.5 times December 2027 estimated EBITDA to the core business and adds value for listed investments, Mozambique Area 1, other upstream investments and unlisted city-gas entities.