BPCL's normalized results were well ahead of our estimates due to higher-than-expected margins. But what does that mean for its stock price?

Chirag Batavia • 31 August 2020

BPCL Ltd

 BPCL's normalized results were well ahead of our estimates due to higher-than-expected margins.

 We expect BPCL to benefit from value unlocking from proposed strategic sale by the government, and potential improvement in earnings/FCF profile under a private player.

 We also expects elevated marketing margins on auto fuels, which may offset ongoing weakness in refining, gradual recovery in domestic petroleum demand, potential turnaround in global refining cycle from below-trough levels currently and lower fuel and loss in a weaker crude price environment.

 Reduction in gross debt; privatization process expected to complete by end-FY21. Gross debt reduced to Rs34,550 cr as of Jun'20 from Rs42,000 cr a quarter ago.

 We expect earnings to grow by 230% in FY21 and by 6.0% in FY22. We raise our FY21E EPS by 35% and FY22-23E EPS by 9-12% factoring in higher auto fuel marketing margins, lower underlying refining margins for FY21, etc.

 We reiterate BUY with a Fair Value of Rs.480.

BPCL Ltd: BUY
Dated: 31st August 2020
CMP: Rs.415
Fair Value: Rs.480
Potential Upside: 16%
Market Cap: Rs.90,022 Cr
Time Frame: 12 months
 
Note: The above is a brief note on the company, based on the inputs of KIE research report dated 14th August, 2020, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.      
Disclaimer: http://bit.ly/2n5AxIE


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