CLSA bearish on BPCL; says euphoria on crude fall misplaced

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Moneycontrol Bureau CLSA has reiterated underperform rating on BPCL with a target price of Rs 650, implying a 30 percent downside. It states that stock price euphoria on the back of crude oil price fall is misplaced.

According to the brokerage, a 16 percent rally in BPCL’s stock on the back of 30 percent fall in crude since May suggests that negative impact of crude price fall on value of BPCL’s deepwater assets in Brazil and Mozambique have been fully ignored.

"These projects need USD 70 per barrel (bbl) to provide returns but futures curve suggests way lower prices through next seven years. Continuation of sub USD 60/bbl price may force write-off value from these reserves," CLSA says in a note.

The brokerage is worried about BPCL’s recent market share loss in diesel, possibly to private players.  Potential of large inventory losses due to USD 15/bbl fall in Brent price in Q2FY16 along with notable quarterly  decline in all key refining product spreads are other near term concerns for the stock, it adds. Shares of the OMC were down 3.5 percent intraday on Friday. At 10:32 hrs Bharat Petroleum Corporation was quoting at Rs 886.90, down Rs 14.85, or 1.65 percent on the BSE. Posted by Nasrin SultanaFollow @NasrinzStory