Buy Bharat Petroleum Corporation: target of Rs 495: Sharekhan

Sharekhan's research repor on Bharat Petroleum Corporation

Q2FY2021 adjusted operating profit at Rs. 4,485 crore/ Rs. 2,581 crore, up 101%/46% y-o-y) was above ours and the street’s estimates due to higher-than-expected inventory gains at Rs. 2,453 crore, better volumes and lower interest costs. A sharp beat in reported GRM at $5.8/bbl (up 71.6% y-o-y) led by refinery inventory gains of $4.3/bbl; derived blended marketing EBITDA margin declined by 17% q-o-q to Rs. 3,565/tonne (below our estimate). The recent recovery in auto fuel volumes, above-average marketing margin and lower interest costs offers earnings visibility over FY2021E-FY2023E. We do not expect inventory gains in Q3FY21 as oil price has stabilised at $40/bbl.

Outlook

The recent 15% decline in stock price due to delay in disinvestment process provides an entry opportunity given potential for re-rating as privatization could align valuation to global peers. Hence, we recommend Buy on BPCL with PT of Rs495.

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