BPCL is a play on privatisation, ICICI Securities highlights KEY Details here

ICICI Securities kept their FY22E EPS and target price of Rs 544 (15% upside) unchanged on Bharat Petroleum Corporation’s (BPCL) stock. It assumes 56% of holding realises Rs 612 (8x FY22E EV/EBITDA) in successful bidder’s open offer and Rs 459 (6x FY22E EV/EBITDA) is realised on balance. 

The positive stance on BPCL by ICICI Securities is with a view on its privatisation. It expects the privatisation to go through at a similar valuation as estimated by ICICI Securities. Among OMCs, ICICI Securities prefer BPCL as they are more confident of gains from privatisation than auto fuel marketing margin and GRM recovering to the level of estimates, which is more crucial to stock performance of peers than of BPCL.

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BPCL Share Price: ICICI Securities says that BPCL Q4FY21 recurring profit stood at Rs 58 bn vs loss in Q4FY20 driven by inventory gain vs loss and higher other income. FY21 recurring EPS is up 3.9x YoY driven by the same factors as in Q4 and 37% YoY rise in auto fuel net marketing margin. 

ICICI Securities have kept FY22E EPS and target price unchanged despite FY22-TD net marketing margin and GRM being well below its FY22 estimates. ICICI Securities are optimistic that the price hike required to boost net margin to its FY22 estimate of Rs2.5/l would be made given the government’s track record. 

Recovery in diesel cracks is key to GRM recovery. BPCL is top pick among OMC space as ICICI Securities are more confident of gains from privatisation than marketing margin and GRM recovery, on which peers’ fortunes are more dependent. Reiterate BUY rating on the stock.

BPCL Valuation & Outlook:

Haitong Securities says that BPCL is trading at an EV/EBITDA of 8x on FY23E, 40%-50% premium to others. Though the dividend is higher than market expectations, Haitong Securities expect the next key trigger would be its divestment which is expected to complete in FY22.

Centrum Broking said that they would seek clarity on the divestment process and BPCL’s management view on selling Petronet / IGL stake to avoid mandatory open offer for the new owner. Additionally, Centrum Broking would also be looking at the outlook for FY22 on the call scheduled tomorrow.