2 Maharatna PSU Stocks To Buy Post Q3 Results For Decent Upside In 1-Year

The domestic brokerage firm ICICI Securities has placed a buy call on the shares of Bharat Petroleum Corporation Ltd (BPCL) and Indian Oil Corporation Ltd (IOCL). Considering their Q3FY22 results, the brokerage estimates the stocks have significant upside potential in a target period of 12 months.

Indian Oil Corporation (IOC)

ICICI Securities has stated in a report that "IOC's core GRM improved in Q3FY22. We expect it to remain healthy in the near term. Passing on higher crude oil costs to customers will be the key to better profitability. We maintain our BUY rating on the stock. We roll overvaluation to FY24E and value IOC at Rs 150 i.e. average of P/E multiple: Rs 152 /share and P/BV multiple: Rs 149/share."

Q3FY22 results of IOCL as per ICICI Securities

• IOC's results were marginally lower than estimates on the profitability front.
• Revenue increased 16.1% QoQ to Rs 197172 crore (our estimate: Rs 185536 crore). Marketing sales increased 11% QoQ to 21 MMT.
• The reported gross refining margin (GRM) was US$12/bbl while the core GRM was US$8.9/bbl. Marketing profitability was lower than estimates mainly due to the impact of excise duty cut as per our understanding. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were at Rs 9862.1 crore, down 7.2% QoQ (estimate: Rs 11383.1 crore).
• Other income was higher-than-expected at Rs 1375.3 crore. PAT was at Rs 5860.8 crore, down 7.8% QoQ (estimate: Rs 6105.4 crore).

Key investment rationale for IOCL as per ICICI Securities

• Stability in global refining product cracks.
• Passing on higher retail prices of petrol & diesel to customers (due to higher crude oil costs).
• Pipeline segment profitability has been consistent over the last few years.
• Consistent dividend payout.

Bharat Petroleum Corporation Ltd (BPCL)

ICICI Securities has said that "BPCL's GRM improved during Q3FY22 and is likely to sustain at higher levels given the recovery in product cracks. We maintain our BUY rating on the stock. We roll overvaluations to FY24E and value BPCL at Rs 450 i.e. average of P/BV multiple: Rs 436/share and P/E multiple: Rs 465/share."

Q3FY22 results of BPCL as per the brokerage

• BPCL reported lower-than-expected earnings in Q3FY22.
• Revenue was up 16.6% QoQ to Rs 118536.8 crore (estimate:Rs 116047.5 crore).
• Gross refining margin (GRM) was higher than expected at US$9.7/bbl (our estimate: US$5.7/bbl). The marketing segment reported an inventory loss of Rs 1423 crore. Subsequently, earnings before interest, taxes, depreciation, and amortization (EBITDA) were Rs 4213 crore, down 5.9% QoQ (estimate: Rs 4741.2 crore).
• Profit After Tax (PAT) was at Rs 2462.4 crore, down 8.6% QoQ (estimate: Rs 2829.1 crore).

Key investment rationale for BPCL as per the brokerage

• Progress on divestment and positive response by bidders for acquisition.
• Stability in global refining product cracks (mainly diesel).
• Passing on higher crude oil costs to customers.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.