Neutral BPCL; target of Rs 395: Motilal Oswal

Neutral

Motilal Oswal's research report on BPCL

BPCL’s EBITDA/PAT came in 32%/40% above expectations in 2QFY26, driven by higher-than-anticipated GRM (USD10.8/bbl). Blended marketing margin also stood 35% above our estimate at INR7.2/lit (up 25% YoY). Refining throughput and marketing volumes came in line with estimates. While we reiterate our Neutral rating on BPCL, we are incrementally more positive on the stock, given: 1) the continued robust marketing and refining environment supported by healthy demand, a favorable regulatory stance, and weak propane prices, 2) recent announcements (signing of non-binding MoU exploring investment collaboration on the Andhra refinery + potential tax sops) have alleviated concerns, to some extent, around the sharp rise in net debt and enhanced the economic attractiveness of the Andhra refinery project, 3) recent announcement by Total, BPCL’s partner in Mozambique LNG project (INR15/share in TP), regarding the lifting of force majeure, which is a positive development and could reopen a new avenue for growth.

Outlook

While valuation appears reasonable and strong marketing performance continues, a muted medium-term refining outlook (our FY27/FY28 PAT estimates are 9%/11% sensitive to every USD1/bbl change in GRM) and the commencement of a new capex cycle emerge as key concerns. Hence, we reiterate our Neutral rating with an SoTP-based valuation of INR340/share.

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