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Last Updated : Oct 09, 2019 10:33 AM IST | Source: Moneycontrol.com

BPCL falls for 3rd day after Centrum downgrades stock to reduce

The stock has fallen 8 percent in the three trading sessions.

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Shares of Bharat Petroleum Corporation (BPCL) fell for the third consecutive session on October 9, losing more than 1 percent after Centrum Broking downgraded its rating on the stock to reduce.

The stock has lost more than 8 percent in three trading sessions after rallying 50 percent since September beginning following the privatisation buzz. It was quoting at Rs 484.85, down Rs 5.60, or 1.14 percent, on the BSE at 1000 hours.

Centrum Broking said it maintained cautious stance on BPCL following the recent run-up in the stock.

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"Despite the structural implications of around 13 percent of Indian refining and around 25 percent of Indian marketing capacity potentially being owned by a private player, we submit that the stock already prices in close to a bull case scenario for BPCL, leaving little on the table for investors," it said.

Additionally, with higher capex in prospect, BPCL also faces significant credit rating downgrades due to losing the implicit government support on balance sheet, raising credit cost, the brokerage said. With clarity pending on valuation and actual interest from potential buyers, Centrum downgraded the stock to reduce, with a target price of Rs 450.

Given that valuations had run ahead of fundamentals, it said investors would do well to book profits from here.

"While its base case target price of Rs 450 per share implies a 8.2 percent downside from CMP, even factoring in more optimistic assumptions for gross refining margin-GRMs ($6.4 a barrel versus $5.9 per barrel in base case), marketing margins (Rs 4,800 per tonne versus Rs 4,700 per tonne) and higher multiples (7x FY21 EBITDA versus 6.5x and 9x for marketing versus 8x) as well as 10 percent higher E&P value gets us to a bull case value of Rs 530 per share, only 8 percent upside from CMP, implying the exuberance around divestment is overdone," it said.

A blue-sky scenario assuming replacement cost for refining (Rs 350 per share enterprise value for refining versus Rs 183 per share base) gets a higher value of Rs 655 per share, but for a going concern with other alternatives in Asia, it is too optimistic a way to look at valuation for BPCL, it added.

The brokerage said the recent uptick in refining margins was a positive, with the International Maritime Organization (IMO) impact seemingly starting to reflect in GRMs. However, with tepid fuel consumption growth, higher capex and the underperformance of Kochi (despite the expansion in place for >1year now) there was little reason to be too optimism in earnings over FY19-21E, it said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Oct 9, 2019 10:33 am
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