BPCL Share price: Jefferies says BUY, pegs target price at Rs 520

BPCL Share Price: Jefferies prefers HPCL over BPCL on favourable valuation but maintains a Buy rating on BPCL with a slightly higher price target of Rs 520 (from Rs 500) helped by a roll-over to FY23. The petroleum refinery company has reported a 330% QoQ rise in the profit at Rs 11940 cr for the quarter ended March 31, 2021 (Q4FY21). It had reported a profit of Rs 2777.6 cr in the previous quarter ended December 31, 2021 (Q3FY21). Revenue grew 15.2% to Rs 76882 cr in the reported quarter as compared to Rs 66,731.4 crore posted in the previous quarter. 

EBITDA grew 17.5% to Rs 5058 cr as compared to Rs 4306 cr posted in the previous quarter. The EBITDA margin remained almost flat at 6.6% in Q4FY21 as compared to 6.5% posted in Q3FY21. 
In Q4FY21 GRM stood at $6.64/Barrel. 

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Forex Gain and Exceptional gain lead to better than estimated performance. This gain includes a gain on sale of investments in subsidiaries of Rs 9,422 crore and a Forex Gain of Rs 199.75 cr. It reported an exceptional Gain of Rs 6992 cr. BPCL has declared a dividend of Rs 58 per share, this includes a special dividend of Rs 35 per share. Zee Business has told you first what to expect on the front of dividend.

Jefferies says that BPCL reported in line core EBITDA, with inventory gains driving a large beat to Jefferies estimate. Marketing volume growth was faster than industry growth. Marketing profitability is likely to be restored as retail price hikes continue. 

Borrowings dropped sharply on proceeds from Numaligarh stake sale and treasury stock sale. Dividend of Rs 58/share and low capex pleasantly surprised. Jefferies cut FY22/23E EBITDA 8/5%; privatization is key for further upside.

Jefferies says that Borrowings fell Rs 155 bn yoy in FY21 on the back of:

1)      Rs 57 bn reduction in government receivables
2)      Rs 80 bn net inflow from sale of stake in Numaligarh refinery
3)      Rs 55 bn from sale of treasury stock
4)      Borrowings will increase to pay dividend (Rs 121 bn) and purchase of Bina refinery stake (Rs 24 bn) in FY22E

Cash & equivalents at Rs 80 bn and lower capex intensity in the run-up to privatisation should keep borrowings in check.

Retail prices of gasoline and diesel have increased by Rs 3-4/lt since the elections ended. At the current crude price, Jefferies calculations suggest further retail price hikes of Rs 1-5/lt in diesel and gasoline respectively are needed to restore normal margins.

Jefferies have cut marketing volumes 9%/8% for FY22/23E to factor in the Covid-related restrictions. 

"We have cut FY22/23E EBITDA 8%/5% but EPS rises as the company shifts to a lower tax regime," it said.

BPCL announced a dividend of Rs 58/share. Lack of pricing freedom during the election clouds the outlook on BPCL's privatisation, in Jefferies view.