With the approval of its stake sale in Numaligarh Refineries Ltd (NRL), the privatization process of Bharat Petroleum Corporation Ltd (BPCL) is catching pace. While investors expect benefits of value unlocking to accrue soon, the proceeds of the stake sale may be used for debt reduction and dividend distribution, rewarding shareholders further. BPCL stock prices thereby saw gains of more than 3% in early trade on Tuesday.
The board has approved the divestment of its entire 61.65% stake in NRL for ₹9,876 crore to a consortium of Oil India Ltd, Engineers India Ltd and the Government of Assam.
“The sale is an important milestone in BPCL’s disinvestment process and cash proceeds may also be paid to BPCL shareholders as a special dividend of ₹40-50/share in the next 1- 2 months," said analysts at Emkay Global Financial Services Ltd.
The valuations of the deal are also looked at in positive light. Analysts at Jefferies India Limited said that “BPCL sold its stake in Numaligarh refinery, higher than our estimate of ₹8400 crore. The positive surprise it is 1.5% of BPCL's current market cap." After paying capital gains tax, it could use the proceeds to pay for the equity stake purchase in Bharat Oman Refineries Limited (BORL) and pay out the rest as one-time dividend of ₹30 per share, they added.
The company, however, has not specified how it plans to use the proceeds of the stake sale. A part of the proceeds could also be used to retire long-term debt. The same would help reduce interest costs and boost the company’s earnings.
Investors sentiment is already firm for BPCL as the government has not interfered in fuel pricing by oil marketing companies. There has been a steep rise in auto fuel prices with rising international crude prices. OMC’s have continued to pass higher crude costs to consumers through regular price hikes.
The strong outlook on marketing margins also cushions the company’s earnings even as refining margins are seen weak.
“Driven by inventory gains, we raise FY21 consolidated EBITDA (Earnings before interest tax depreciation and amortisation) by 16%, and FY22/FY23 by 4% / 10%, as higher marketing margins offset our cut in refining margins: say analysts at Nomura Research.
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