Bharat Petroleum Corporation (BPCL) share price has plunged around 5 per cent so far this year. However, going forward, the stock is expected to rally over 15 per cent on the back of fuel price hikes, reduction in LPG under-recoveries. Domestic brokerage firm HDFC Securities is bullish on the stock, given it has corrected around 30% from its peak over the last six months, owing to pressure on auto-fuel marketing margins and an increase in LPG under-recoveries. “We believe the recent correction is overdone, and see limited downside from current levels, led by improvements in refining margins, resumption of daily auto-fuel price changes, and a gradual reduction in LPG under-recoveries,” it said in a note. BPCL shares were trading flat at Rs 368.30 apiece on the Bombay Stock Exchange, 11 per cent up from its 52-week low of Rs 331, hit on 23 February, 2022.
HDFC Securities: BUY
Target price: Rs 420
Refining margin improvement to offset marketing margin pain: So far in the fourth quarter of FY22, gasoline cracks have improved to $11.9/bbl (at six-year high) and gasoil cracks have improved to $12.3/bbl (two-year high), led by improvement in global petroleum product demand, after COVID recovery, resulting in an improvement in gross refining margins (GRMs) for oil marketing companies (OMCs). HDFC Securities believes that the stabilisation of the PDPP unit at Kochi by H2FY23 should contribute $1/bbl improvement in refining GRMs for BPCL. It expects overall BPCL GRMs to improve to $7 per bbl by FY24 vs $1.9/bbl in FY21.
Auto fuel margins have bottomed, improvement to be gradual: A combination of a sharp surge in crude oil price and pausing of revision in retail auto fuel and LPG prices due to state assembly elections recently resulted in contraction of auto-fuel marketing margins and increase in LPG under-recoveries for the OMCs. “With the assembly elections now over, we expect OMCs to resume daily revision of retail auto fuel prices, albeit gradually. Given the increase in oil prices, our calculation suggests that OMCs need to take Rs 11/ltr price hike to factor in the rise,” the brokerage said.
It has a Buy rating on the stock with a target price of Rs 420, implying over 15 per cent potential rally. “Our SOTP valuation factors in BPCL’s refining segment at 5x EV/E, marketing and pipeline segments at 6x EV/E and investments at 25% discount to current market price. At CMP, BPCL is trading at 10.1x FY23E EPS and 8.3x FY23E EV/EBITDA (vs. the five-year average of 10.8x PER and 7.9x EV/E),” it said.
Kotak Securities: BUY
Target price: Rs 389, SL: Rs 360
“The stock is trading into a rising channel pattern forming the higher top and higher bottom series continuously on the weekly scale. The strong bullish candlestick formation on the daily chart suggests that the counter is likely to maintain bullish continuation in the near term,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities. The brokerage trimmed its FVs for OMCs given a challenging environment in the near term which will act as an overhang. However, it retained the constructive stance given inexpensive valuations. For BPCL, Kotak Securities cut FV to Rs 420 from Rs 460 earlier.
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