BPCL reported its Q1FY17 results, which were above our estimates. The topline increased 29% QoQ to | 57015.8 crore, above our estimate of | 48631.3 crore mainly due to a change in accounting standards to IND-AS • EBITDA increased 12.3% QoQ to | 3919.2 crore, higher than our estimate of | 2884.8 crore, mainly due to product inventory gains and higher market sales QoQ. However, GRMs came in lower at US$6.1 /bbl against our estimate of US$6.5 /bbl • Subsequently, PAT increased 2.8% QoQ to | 2620.5 crore, higher than our estimate of | 1854.6 crore. There was no subsidy burden on the company for the quarter.

The management has communicated that the Kochi refinery expansion project is running on schedule and is expected to be fully commissioned in Q4FY17 and would lead to ~US1.5/barrel improvement in GRMs. The improvement in refining margins will be the key factor to watch along with the fuel subsidies. Going forward, we expect stable marketing margins over the next two years. Hence, we have a BUY recommendation on the stock with a target price of | 665 (based on average of P/BV multiple: | 611/share and P/E multiple: | 719/share).