Mixed views from brokerage firms on BPCL following Q2 results

Brokers have mixed views on Bharat Petroleum Corp Ltd following the release of its June quarter results and earnings call.
Jefferies India downgraded the stock to hold from buy and lowered its price target to Rs 425 from Rs 445 per share. Kotak Institutional Equities and Motilal Oswal Securities maintain bearish and neutral call options on the stock, respectively.
Meanwhile, ICICI Securities and Nomura Research maintained their buy ratings on BPCL and raised their price targets. ICICI Securities expects a target price of Rs 540 per share from Rs 445 per share while Nomura expects a 20% increase in share price to Rs 455 per share from Rs 379 previously. BPCL posted a profit that beat expectations, mainly due to a substantial recovery in retail fuel marketing and improved refining margins, possibly benefiting from lower Russian crude prices.
Kotak and Jefferies expect recent earnings momentum as lower Russian crude discounts affect refining operations and higher oil prices affect marketing. As incomes return to normal, net debt will increase significantly from 2025E, along with capital expenditures increasing 2-3 times from previous levels. In Kotak’s view, a significant portion of the loss incurred last year has been recouped, raising the possibility of a drop in retail fuel prices. Despite improving debt concerns, Kotak’s main concern for petroleum marketing companies (OMCs) is their lack of pricing freedom. Meanwhile, Nomura expects the refining outlook to remain strong, supported by a strong increase in global oil demand of 2.2 million bpd year-on-year, forecasting strong demand for crude oil. China, driven by an increase in air travel and petrochemicals, a favorable supply and demand scenario and a significant reduction in global product inventories.
Nomura’s latest report to investors said: “We strongly increased our FY2024 EBITDA by 81% taking into account BPCL’s strong Q1 FY2024 performance and keeping the overall EBITDA unchanged. 2025. P/B fiscal year 2025″. Going forward, ICICI Securities expects normalizing marketing margins and lower refined gross margins (GRMs) throughout the remainder of fiscal year 24E. Despite applying conservative assumptions for both segments, FY24E earnings are expected to exceed current estimates by a substantial margin of 17% to 27%. The brokerage firm adjusted EPS for 2024/25E at 15.5%/22.9%, respectively.
“While GRM assumptions are 54% lower than FY23 levels and ~4 INR/litre for retail fuels (vs. INR 8.8/litre in Q1), we expect a pace compound annual growth of 113% on EPS for BPCL (consolidated) in 2023-25E (although supported by a 69% EPS drop in 2023) The resumption of progress on the megaproject in Mozambique is a driving force for added value. Based on our revised estimates, a valuation of just 5.3x EPS/5.1x EV/EBITDA (on a 2025 basis) is attractive,” ICICI Securities said in a note to investors. Investors.