BPCL board approves stake sale in Numaligarh Refinery; what should investors do?

The transaction is subject to approval from shareholders of BPCL and will get completed within a month from obtaining all requisite approvals. The transaction is subject to approval from shareholders of BPCL and will get completed within a month from obtaining all requisite approvals.

March 02, 2021 / 09:55 AM IST
Image: Reuters

Image: Reuters

 
 
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Bharat Petroleum Corporation (BPCL) share price rose 5 percent in early trade on March 2 after the company's board approved the sale of its entire stake in Numaligarh Refinery.

".....board at the meeting held on March 1 has approved the proposal for sale of entire equity shares held by BPCL in Numaligarh Refinery (NRL)," the company said in the release.

BPCL is going to sale 45,35,45,998 equity shares of Rs 10 each (constituting 61.65% of the total equity capital of NRL), a material subsidiary company of BPCL to a consortium of Oil India Limited and Engineers India Limited; and to Govt of Assam, or only to the said consortium in case Govt of Assam does not participate in the purchase of said shares, in such proportion and on such terms and conditions as approved by the board.

The transaction is subject to approval from shareholders of BPCL and will get completed within a month from obtaining all requisite approvals.

Here is what the brokerages are saying about the stock and the company:

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Prabhudas Lilladher

The transaction values NRL at P/E of 8x/10x and EV/E of 5x/8x FY19/20 respectively. The transaction is likely to be closed within a month of getting all the approvals. This is in line with BPCL management commentary to close the transaction by Q4 FY21 end.

The proposed stake sale is a precursor to the eventual divestment of BPCL, which will likely conclude by H1FY22E.

The broking house reiterated buy as BPCL remains a prized asset given its footprint across the energy value chain and it values BPCL at PER 9X FY22. It has a target of Rs 505 per share.

Motilal Oswal

On an EV-to-EBITDA basis, the company has signed the NRL/BORL deal at 7.8x/7.4x FY20 EBITDA. On completion of the aforementioned two deals, the company would have incremental cash of Rs 74.8 billion.

We value BPCL on par with the post-reform period to arrive at a target price of Rs 520.

Emkay

The sale is an important milestone in BPCL's disinvestment process, and cash proceeds may also be paid to BPCL shareholders as a special dividend of Rs 40-50/share in the next 1-2 months.

The brokerage has retained buy and overweight on BPCL, with a target price of Rs 495.

CLSA | Rating: Outperform | Target: Rs 450

According to CLSA, the Numaligarh Refinery stake sale is 16% less than the value we assigned. The Rs 16,000 crore valuation for NRL could impact fair value by Rs 9 per share. This sale is an important & necessary step towards completing privatisation, reported CNBC-TV18.

JPMorgan | Rating: Overweight | Target: Raised to Rs 550 from Rs 525

NRL stake sale value is higher than expected and stake sale allows for the process to move to the critical due diligence stage. The cash usage from this stake sale could likely be a one-time special dividend, reported CNBC-TV18.

Jefferies | Rating: Buy | Target: Rs 500

Numaligarh Refinery stake sale value of Rs 9,900 crore, which is higher than the Rs 8,400 crore estimate, while positive surprise is 1.5% of BPCL's current market cap.

It could use the proceeds to pay for the equity stake purchase in BORL, while it could also payout as a one-time dividend of Rs 30 per share. However, it may even decide to retire long-term debt & add 4% to annual PBT, reported CNBC-TV18.

bpcl

At 09:18 hrs, Bharat Petroleum Corporation was quoting at Rs 473.90, up Rs 19, or 4.18 percent on the BSE.

The share touched a 52-week high of Rs 480.80 and a 52-week low of Rs 252 on 21 July 2020 and 24 March 2020, respectively.

Currently, it is trading 1.44 percent below its 52-week high and 88.06 percent above its 52-week low.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Mar 2, 2021 09:55 am

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