ICICI Securities recommended hold rating on Bharat Petroleum Corporation with a target price of Rs 361 in its research report dated June 04, 2020.
ICICI Securities research report on Bharat Petroleum Corporation
BPCL expects FY21E auto fuel marketing margin to be similar to that in FY19 and suggested investors should ignore short-term volatility. We estimate net margin was Rs1.83/l in FY19 and Rs2.2/l in FY20 v/s Rs0.97-1.06/l in FY15- FY18. Net auto fuel marketing margin was Rs8.3/l in Apr-May’20 but plunged from Rs16.1/l on 5-May’20 to Rs3.9/l on 6-May’20 due to hike in excise duty on petrol and diesel by Rs10-13/l, which was absorbed by the OMCs. Surge in international prices thereafter, which was not passed on to consumers, has meant net margin is in the red at minus Rs1.28/l in 1-15 Jun’20 assuming 20% YoY decline in volumes. Based on prices in 1-4 Jun’20 net margin in 16-30 Jun’20 is estimated to go steeper in to the red at minus Rs3.22/l. We estimate Q1FY21E net marketing margin at Rs4.91/l assuming current domestic and international prices remain unchanged.
Outlook
We are also optimistic that retail price hikes would be made before the 31-Jul’20 deadline for expression of interest (EoI) for BPCL privatisation as auto fuel marketing margins being at healthy level is crucial for success of BPCL’s privatisation.
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