India Infoline Result Update Bharat Petroleum Corporation Ltd (Q2 FY07) CMP Rs410, Rating Underperformer November 02, 2006 BPCL reported over 55% yoy growth in net sales, driven by Rs32bn bond income, higher volumes and better realizations. Operating profit, including bond income stood at Rs17bn. But, sans the bond income the company registered an operating loss of Rs15bn. The loss was driven by surging under recoveries and was accentuated by declining GRMs. Going ahead; the two factors that will drive profitability growth would be the government’s stance on pricing of the four key products (MS, HSD, SKO and LPG) and subsidy sharing mechanism. These two factors increase the unpredictability of earnings, which has already been impacted by volatility in crude oil prices. Financial Highlights Including receipt of Bond of Rs32bn Q2 FY07 Q1 FY07 Growth (%) 288,323 189,565 52.1 (23,149) (19,167) 20.8 265,174 170,398 55.6 (248,036) (169,176) 46.6 17,138 1,222 1,302.5 2,207 1,503 46.8 (920) (461) 99.6 (1,964) (1,798) 9.2 16,461 466 3,432.4 (3,876) (278) 1,294.2 12,585 188 6,594.1 3,615 3,615 6.5 0.7 139.3 410.0 2.9

Gross Sales Excise Duty Net Sales Total expenditure Operating Profit Other Income Interest Depreciation PBT Tax PAT Equity OPM (%) EPS (Rs Annualized) CMP P/E

Excluding receipt of Bond of Rs32bn Q2 FY07 Q1 FY07 Growth (%) 256,203 189,565 35.2 (23,149) (19,167) 20.8 233,054 170,398 36.8 (248,036) (169,176) 46.6 (14,983) 1,222 2,207 1,503 46.8 (920) (461) 99.6 (1,964) (1,798) 9.2 (15,660) 466 (3,876) (278) (19,536) 188 3,615 3,615 (6.4) 0.7

Operational parameters Throughput (MMT) Market Sales (MMT) Purchase of Products (MMT) GRM - Mumbai (US$/bbl) GRM - Visakh (US$/bbl)

Q2 FY07 5.0 5.4 0.4 2.9 2.4

Q2 FY06 4.0 5.0 1.0 3.8 6.3

Change (% yoy) 24.1 8.6 (56.3) (22.0) (62.6)

Net sales surge on back of better than expected volume growth BPCL reported 55.6% yoy growth in net sales at Rs265bn, driven by three factors: (the numbers are inclusive of Kochi refinery numbers as the same has been merged with BPCL with effect from April 1, 2004) ¾ Booking of income from oil bonds to the tune of Rs32bn ¾ 8.6% yoy increase in market sales to 5.4 MMT. The volume growth was driven by decline in market sales at RIL outlets. However, with RIL decreasing the prices of diesel and petrol at it outlets the volume growth for oil marketing companies would definitely slow down. ¾ More than 25% yoy increase in realizations Sans the bond income, net sales rose by a healthy 36.8% yoy to Rs233bn.

India Infoline Ltd, 15th Floor, P.J. Tower, Fort, Mumbai- 01. Tel: 91-22-6749 1700

India Infoline Result Update Bharat Petroleum Corporation Ltd (Q2 FY07) CMP Rs410, Rating Underperformer November 02, 2006 Sharp fall in GRMs pressurize operating margins Including the bond income operating profit was at Rs17bn whereas excluding it the company registered a loss of Rs15bn, during Q2 FY07 against a profit of Rs1.2bn in Q2 FY06. The loss was despite the fact that the company received Rs13.4bn (98.6% higher when compared to Rs6.7bn in Q2 FY06) as discounts for purchase of Crude Oil, LPG and SKO from ONGC and GAIL. To worsen the situation, GRMs fell from US$3.77/bbl in Q2 FY06 to US$2.94/bbl for Mumbai refinery and from US$6.34/bbl to US$2.37/bbl for Kochi refinery. The fall was in line with the trend in international refining margins. However, going ahead with seasonal factors coming into play and no major incremental supplies coming on steam, we expect refining margins to strengthen from Q4 FY07 and stay firm through to H1 FY09. Government stance on the pricing issues will be the key driver for profitability going ahead Future profitability for the company continues to remain highly uncertain on precarious issues of pricing and subsidy sharing mechanism. With crude oil prices slipping from their historical highs of over US$78/bbl to current levels of under US$60/bbl, the industry under recoveries are likely to be significantly lower and if the government maintains its stance on putting higher burden on the upstream companies, OMCs would not take much time to turn to black. However, the uncertainty on these issues still remains. Valuations The replacement costs for the assets of the company stand at over Rs550 per share and also merger of Kochi Refineries will reduce the subsidy burden as purchase of products as a percentage of total sales declines from 19.2% in Q2 FY06 to 7.75% in Q2 FY07. However, with high degree of uncertainty about the government regulations and low predictability about future earnings growth we rate the stock as underperformer.

Published in November 2006. © India Infoline Ltd 2006-07. This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intended as an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis of the information contained herein is your responsibility alone and India Infoline Ltd (hereinafter referred as IIL) and its subsidiaries or its employees or directors, associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete. IIL or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this publication. The recipients of this report should rely on their own investigations. IIL and/or its subsidiaries and/or directors, employees or associates may have interests or positions, financial or otherwise in the securities mentioned in this report.

India Infoline Ltd, 15th Floor, P.J. Tower, Fort, Mumbai- 01. Tel: 91-22-6749 1700