Brokerage firms have mixed views on Bharat Petroleum Corp Ltd post its June quarter results and earnings call.
Jefferies India has downgraded the stock to hold from buy and lowered its target price to Rs 425 from Rs 445 a share. Kotak Institutional Equities and Motilal Oswal Securities have retained their reduce and neutral call on the stock, respectively.
Meanwhile, ICICI Securities and Nomura Research have maintained their Buy ratings on BPCL and increased their target prices. ICICI Securities expects a target price of Rs 540 a share from Rs 445 a share while Nomura expects a 20 percent increase in stock price to Rs 455 a share from Rs 379 earlier.
BPCL has delivered earnings that surpassed expectations, primarily driven by substantial over-recoveries in retail fuel marketing and improved refining margins, which can be attributed to the advantages gained from discounted Russian crude.
Kotak and Jefferies expect that there has been a recent decline in earnings momentum due to a reduced discount on Russian crude impacting refining, and the increasing oil prices affecting marketing. As profits return to a normal state, there will be a significant rise in net debt starting from FY25E, coupled with a 2-3x increase in capex compared to previous levels.
According to Kotak's perspective, a significant portion of the losses incurred last year has been regained, which raises the possibility of a retail fuel price reduction. Despite the improvement in debt-related concerns, Kotak's main worry for oil marketing companies (OMCs) lies in their lack of pricing freedom.
Meanwhile, Nomura expects the refining outlook remains robust, underpinned by a strong 2.2mn b/d YoY increase in global oil demand, strong demand anticipated for China, driven by an uptick in air travel and petchem, a favourable supply-demand scenario and significant drawdown in global product inventories.
"We sharply raise our FY24F EBITDA by 81% on factoring in BPCL’s robust performance in 1QFY24 and broadly retain FY25F EBITDA. We factor conservative estimates across refining and marketing margins and reiterate Buy given a robust refining outlook. The stock trades at 1.2x FY25F P/B", Nomura's latest report said to its investors.
Going forward, ICICI Securities anticipates a normalization of marketing margins and softer gross refining margins (GRMs) throughout the remainder of FY24E. Despite adopting conservative assumptions for both segments, FY24E earnings are projected to exceed current street estimates by a significant margin of 17 percent to 27 percent. The brokerage house revised FY24E/25E EPS by 15.5 percent/22.9 percent respectively.
"Even as GRM assumptions are 54 percent lower vs FY23 levels and ~INR 4/ltr for retail fuels (vs INR 8.8/ltr for Q1), we expect a peer-leading 113 percent EPS CAGR for BPCL (consolidated) over FY23-FY25E (albeit helped by the 69 percent fall in EPS in FY23). Revival of progress at the Mozambique mega project is an additional value driver. At our revised estimates, valuations of just 5.3x EPS / 5.1x EV/EBITDA (based on FY25E) are unchallenging", said ICICI Securities in a note to investors.
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