Buy BPCL; target of Rs 1,116: KRChoksey

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26 Aug, 2025 12:21

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Bharat Petroleum Corporation Ltd (BPCL) posted a net profit of Rs. 2,376 crs down 16.7% QoQ and up 95.4% YoY. Net profit was up YoY due to higher refining margins, lower interest expense and lower raw material consumed. Net profits were partially offset by an increase in other operating expenses and lower other income. GRM’s for the quarter was $8.6/bbl, against $7.9/bbl in 4QFY15 and $3.4/bbl in 1QFY15. Refinery margins increased both on YoY and QoQ basis. BPCL reported nil net under-recovery in 1QFY16 versus a modest net over-recovery of Rs. 7 crs in 4QFY15 and net under recovery of Rs. 503.8 crs in 1QFY15.

Valuation and View: We expect NIL under recoveries for FY16 and model refining margin for BPCL at $5.6/bbl in FY2016E and $5.0/bbl in FY2017E versus $3.6/bbl in FY2015. We expect crude throughput at 24 mn tons for FY16 and 24.6 mn tons for FY17 versus 23.4 mn tons in FY15. We expect marketing margin of Rs. 2/liter on gasoline for FY16-17 and marketing margins on diesel at Rs. 1.6/litre in FY16 and Rs 2/litre in FY17. We prefer BPCL as a play on improving domestic marketing environment (diesel deregulation) and stronger upstream portfolio. We recommend BUY with price objective of Rs 1,116/share based on a mix of EV/EBITDA, P/BV and P/E methodology. Stock trades at 9.8x FY17E EPS of INR 87.8 and 1.7x FY17E BV (adjusted for investments).

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