Shares of government owned, Bharat Petroleum Corporation Ltd (BPCL) is available at a solid dividend, with the company recently announcing a hefty dividend of Rs 58 per share.
The final dividend would be paid within 30 days from the date of its declaration at the AGM, which is not yet announced.
If the investor would buy the stock now it is trading at Rs 448, and assume post the dividend it drops by Rs 58, the stock should go to Rs 390, which should be very attractive given significantly higher targets by brokerage firms in the past few months.
ICICI Direct, Motilal Oswal Say "Buy" the stock
Earlier, ICICI Direct had a "buy" call on the stock of BPCL, which it had anticipated could reach a price target of Rs 495 per share. If you include the cost of acquisition (Rs 390, inclusive of dividend) than the price target of Rs 495, leaves ample room for appreciation in the stock.
According to an earlier report from ICICI Direct, marketing sales reached near normal level in Q4FY21, second wave of Covid-19 and subsequent movement restrictions led to reduction in fuel demand.
"This has affected capacity utilisation as well that reduced up to 86- 87% in May. Improvement in global product cracks and further recovery in fuel demand will be important for Bharat Petroleum Corporation Ltd's profitability in the near term.
The progress on divestment, response by bidders and subsequent valuation ascertained to the company will be a key monitorable and will drive stock price. We roll over valuations to FY23E and maintain HOLD recommendation on the stock with a target price of Rs 495 based on average of P/BV multiple and price to earnings multiple at Rs 495 per share each," the brokerage has said.
In a report Motilal Oswal also had upped the price target on the stock, citing faith in the privatization measures of the company. The company had placed a buy on the stock, in its last research report on BPCL.
"BPCL posted better-than-estimated profitability, driven by better marketing volumes and refining/marketing margin, further aided by inventory gains. The company made huge progress towards privatization in FY21, despite challenges posed by COVID-19, by streamlining its subsidiaries (divested its entire stake in NRL, consolidated its stake in BORL, merged BGRL with BPCL) and sold off its trust shares," the brokerage said.
Why you should buy the stock ahead of privatization?
Many analysts believe that once the privatization move of BPCL is over, it could drive the stock of the company even higher. Reports suggest that Vedanta is among the bidders for BPCL.
There were also reports that the Union government is considering a proposal to allow up to 100 per cent foreign investment under the automatic route in oil and gas PSUs that have an 'in-principle' approval for disinvestment. This could be a big trigger for the stock. However, we cannot confirm whether it is speculation or such things could happen. But, all things put together the acquisition cost of Rs 390, makes the stock a good buy. However, putting all things together and also from what brokerages are saying, if you get the stock of BPCL at Rs 390 per share, it would certainly be a good stocks to buy.
Investing in stocks is risky and investors need to be cautious. Neither Greynium Information Technologies nor the author, nor the brokerage houses mentioned would be responsible for any losses incurred based on decisions made from the article. Investors are also advised caution as the markets have closed at an historic high.