Buy This Maharatna Stock For A Target Price Of Rs 390: HDFC Securities

Stock Outlook & Returns

The current market price of the stock is Rs 325.65 apiece, trading Rs 32.3 above the 52 week low of Rs 293.35 apiece and Rs 177.35 below the 52 week high of Rs 503 apiece, respectively. On Intraday, the stocks are trading near the high. 

In terms of returns on investment, the stock has fallen nearly 2.35% in the past 1 week, however, gained roughly 0.11% in past 1 month, respectively. Over the past 1 year, the stock has fallen 28.52%, 5.2% in 3 years, and 35.52% in 5 years, respectively. 

The TTM PE ratio is 6.05, while the sector PE ratio is 22.94. The P/B ratio is 1.36. The TTM EPS is Rs 53.85, and ROE is 22.50%. The debt to equity ratio is 1.08. The dividend yield is 4.91% and the face value is Rs 10.

Refining

Bharat Petroleum Corporation Limited's reported crude throughput, including the Bina refinery, was at 9.7mmt (-5% QoQ). Overall GRM stood at USD 27.5/bbl, with Mumbai refinery GRM at USD 23.3/bbl, Kochi refinery GRM at USD 27.4/bbl and Bina refinery GRM at USD 35.1/bbl. We maintain our GRM estimates for FY23/24 at USD 8.2/7.9 per bbl for BPCL and USD 9.5/9.3 per bbl for Bina refinery. 

Marketing

Domestic marketing sales volume was at 11.8mmt (+22% YoY, - 1% QoQ). Blended gross margin stood at Rs -8.8/lit in Q1, impacted by the pause in revision of auto fuel retail prices and marketing inventory loss of Rs 3.7bn. We expect blended gross margin of Rs 3.2/3.7 per lit in FY23/24E respectively. 

Change in estimates

"We adjust our FY23/24E EPS estimates down by 8/1% to Rs 28.6/39.2, to factor in weakness in marketing margins for FY23. Our Target Price is revised to Rs 390/share to factor lower capex assumption over FY23/24," the brokerage has said.

SOTP-based valuation

"Our target price comes to Rs 390/share (5x Mar-24E EV/e for standalone refining business, 6x Mar-24E EV/e for marketing business and pipeline businesses, and Rs 146/sh for other investments). The stock is currently trading at 8.6x on FY24E EPS," the brokerage has said. 

Marketing loss impacts profitability

Commenting on the valuation, HDFC Securities said, "Our BUY rating on Bharat Petroleum (BPCL), with a target price of INR 390, is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins over the coming 18 months, and (3) gradual improvement in marketing margins for FY23-24 vis-à-vis FY22 levels. Q1FY23 EBITDA loss stood at Rs 59bn, higher than our estimated loss, owing to poor performance from the marketing segment and higher other expenses, resulting in loss of Rs 63bn for Q1. Reported GRMs, however, remained robust at USD 27.5/bbl."

About - Bharat Petroleum Corporation Limited

Bharat Petroleum Corporation Limited was established in 1952. It is a Maharatna Company under the Government of India. It is one of the leading companies in the petroleum sector in India. The 1860s saw vast industrial development. A lot of petroleum refineries also came up. An important player in the South Asian market then was the Burmah Oil Company. Though incorporated in Scotland in 1886, the company grew out of the enterprises of the Rangoon Oil Company, which had been formed in 1871 to refine crude oil produced from primitive hand-dug wells in Upper Burma.