BPCL shares rally 66% since March, net profit doubles in Apr-Jun quarter; should you buy, sell or hold?

Foreign brokerage firm said that the weak global oil demand kept the refining outlook subdued

Bharat Petroleum Corporation Ltd (BPCL) shares have rallied 66 per cent from March lows. In today’s trade, shares jumped over one per cent to Rs 418 apiece. State-run oil marketing company nearly doubled its net profit to Rs 2,076.17 crore in the April-June quarter, as compared to Rs 1,075.12 crore in a year-ago period. The management of the company said that the rise in profit was due to inventory gains resulting from the valuation of inventory held rising because of a pick up in oil prices in the later half of the quarter. Following quarter earnings, brokerages have mixed views on BPCL shares.

Foreign brokerage CLSA has retained a ‘sell’ rating to the stock. The brokerage firm said that the weak global oil demand kept the refining outlook subdued. “Privatisation-linked newsflow may drive near-term excitement, but BPCL remains the most expensive global refiner,” it added. The brokerage firm also said that recent sharp hikes in auto fuel prices in Brent above the spot level, incremental gains hereon would be limited.

BPCL in a statement said that the outbreak of COVID-19 globally and resultant lockdown in many countries, including in India, had an impact on the business of the BPCL. Consequently, lower demand for crude oil and petroleum products has impacted the prices and therefore refining margins globally. Since petroleum products are covered under essential services, the refining and marketing operations of the Corporation were continued during the lockdown period. IDBI Capital has downgraded its rating to hold from buy earlier. “The company expects its disinvestment process to get over by end-FY21 and its investment in Petronet, IGL etc to remain a part of the deal,” it said.

The management of BPCL said that with the gradual reopening of the economy, Bharat Petroleum Corporation expects the refinery throughput and revenue from operations will improve and will be at normal levels post COVID 19 impact and removal of complete lockdown restrictions. JM Financial Institutional Securities has also maintained a hold rating to the stock due to the challenging GRM outlook on surplus refining capacity globally. “BPCL’s potential privatisation provides significant value creation optionality from synergy and efficiency improvement (particularly for sovereign crude exporters),” it said.

According to Motilal Oswal Financial Services, challenges remain on BPCL’s divestment to a private party, namely (a) guarantee of non-interference in pricing of auto fuels even if oil surges, (b) complexities involved in dealing with subsidiaries and JVs, and (c) high employee cost. It has given a neutral rating.

Sharekhan Research is positive on the stock as it believes that the worst is over for BPCL in terms of inventory losses and earnings are poised for a sharp recovery over FY2021E-FY2022E, led by higher auto fuel marketing margins, volume recovery and inventory gains, offsetting weak refining margins. “Moreover, the government’s keen interest to privatise BPCL by selling its 53% stake in FY2021E could act as a key re-rating of BPCL, as in that case valuation of its refining and marketing assets would get aligned to global peers,” it added.

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