Brokerages See Privatisation As Key For BPCL’s Stock; Stay Bullish After Q4

Shares of Bharat Petroleum Corp. jumped to the highest in more than a year as analysts remained bullish on the oil marketer, citing better operating income on inventory gains and above-estimated dividend among others. Privatisation of the state-owned company, however, remains key for the stock.

Net profit of the company jumped more than fourfold over the preceding quarter in the January-March period. That was helped by a one-time exceptional gain of Rs 6,992.9 crore during the quarter, according to an exchange filing.

The exceptional items included a gain of Rs 9,422.42 crore on account of the sale of its subsidiary Numaligarh refinery, an impairment loss of Rs 2,032.79 crore and employee share-based expenses of Rs 396.68 crore.

Its revenue, too, rose over the preceding three months.

BPCL’s market sales of products such as petrol, diesel and aviation turbine fuel stood at 11.17 million metric tonnes in the fourth quarter compared with 11.1 MMT in the October-December quarter. Exports more than doubled to 0.63 MMT.

The company also recommended a final dividend of Rs 58 apiece, including a one-time special dividend of Rs 35. This, the company said, is in addition to its interim dividend of Rs 21 apiece.

Shares of BPCL rose as much as 3.6% to Rs 476 apiece—the highest since February 2020. The stock, however, pared most of the gains to trade flat as of 1 p.m. on Thursday.

Of the 38 analysts tracking the company, 36 recommend a ‘buy’, while one each suggest a ‘hold’ and ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 7.9%.

Here’s what brokerages have to say about BPCL’s fourth-quarter results:

Jefferies

• Maintains ‘buy’ and raises target price to Rs 520 from Rs 500 apiece.
• Company’s petrol market share declined 10 basis points YoY, whereas diesel market share was up 30 bps YoY.
• Borrowings fell Rs 15,500 crore YoY in FY21, helped by Rs 5,700 crore reduction in government receivables, Rs 8,000 crore net inflow from the stake sale in Numaligarh refinery and Rs 5,500 crore from sale of treasury stock.
• Cuts marketing volumes by 9%/8% for FY22/23E to factor in Covid-related restrictions.
• Lack of pricing freedom during the election clouds the outlook on BPCL’s privatisation.

ICICI Securities

• Rates ‘buy’ and keeps FY22E EPS (Rs 46.4) and target price of Rs 544 apiece unchanged.
• Reported GRM at $6.64 per barrel was up 8.9 times YoY, while core GRM at $2.46 a barrel was down 67% YoY.
• Prefers BPCL among oil marketing companies due to the likely gains from privatisation.
• Gradual recovery in global demand as vaccines are rolled out may help diesel cracks and GRM recover.
• “We are optimistic that price hike required to boost the net margin to our FY22 estimate of Rs 2.5/litre would be made given the government’s track record.”

Motilal Oswal

• Rates ‘buy’.
• Adjusted Ebitda for inventory gains stood at Rs 1,420 crore.
• The marketing margin stood at Rs 6.1/litre, whereas the marketing sales volumes were 7% higher than estimates.
• The company opted to move to the new tax regime and recognised deferred tax liabilities of Rs 1,820 crore. The tax rate stood at 2.4% in 4QFY21.
• The reported PAT came in at Rs 11,940 crore, while adjusted PAT (for the exceptional items) stood at Rs 5,120 crore.

Citi Research

• Maintains ‘buy’.
• Ebitda gains were driven by high inventory gains in refining and marketing.
• Net income is aided by exceptional items, primarily the gain on sale of BPCL’s stake in Numaligarh Refinery.
• Dividend announcement of Rs 58/share (approximately 12% yield) is positive and above most expectations.
• The focus will shift to privatisation and there are clear signs of progress.

JPMorgan

• Large inventory gains of Rs 3,640 crore and exceptional gains of Rs 6,992 crore drive earnings.
• Large one-time dividend per share (Rs 58/share) is the main highlight of the quarter.
• Diesel gross marketing margins have normalised at the spot prices, though 1-2% increase in petrol prices is needed for normalising petrol margins.
• The privatisation process has been pushed back due to the Covid-19 pandemic but remains the key driver for the stock price.