Mixed views from brokerage firms on BPCL following Q1 results
Following the release of Bharat Petroleum Corp Ltd (BPCL)’s financial results for the June quarter and the subsequent earnings call, brokerage firms have offered differing opinions on the stock. This divergence in views reflects the complexity of the current market conditions and the uncertainty surrounding the company’s performance and prospects.
Jefferies India, a prominent brokerage firm, made the notable move of downgrading BPCL’s stock from a “buy” recommendation to a “hold” stance. This shift in their outlook suggests that Jefferies India believes the stock may not be as attractive for potential appreciation as it was before.
As a result, they have also revised down their target price for BPCL shares, indicating a more conservative expectation for the stock’s future performance. Investors who had previously considered BPCL a promising investment may now be prompted to reassess their positions in light of this change in recommendation.
On the other hand, Kotak Institutional Equities and Motilal Oswal Securities have opted to retain their previous calls on BPCL, albeit with differing stances. Kotak maintains its “reduce” call, signaling a cautious approach to BPCL shares, suggesting that they believe the stock’s performance might not be as favorable as desired. This implies that Kotak sees potential risks or headwinds that could impact the company’s growth prospects or overall market sentiment towards the stock.
Motilal Oswal Securities, in contrast, has reiterated its “neutral” call on BPCL. This indicates that Motilal Oswal believes the stock’s prospects are relatively balanced, with neither a strong bullish nor bearish bias. The neutral stance suggests that the brokerage firm does not see any compelling reasons to recommend either buying or selling BPCL shares at this time.
The varying assessments by these brokerage firms underscore the complexities in analyzing BPCL’s financial health, industry dynamics, and broader economic conditions. It is not uncommon for different firms to interpret data and market trends differently, leading to diverse views on the same stock. Investors should, therefore, exercise caution and conduct thorough research before making any investment decisions related to BPCL.
As the stock market is inherently dynamic and subject to frequent changes, market participants need to keep abreast of the latest developments and expert opinions. Understanding the rationale behind each brokerage firm’s recommendation can help investors make informed choices that align with their risk tolerance and investment goals.
Moreover, it is essential to take into account personal financial circumstances and seek professional advice if needed when making investment decisions in a volatile market environment.
In contrast to the mixed views expressed by some brokerage firms, ICICI Securities and Nomura Research have demonstrated a bullish outlook on Bharat Petroleum Corp Ltd (BPCL) after its June quarter results and earnings call. Both firms have maintained their “Buy” ratings on the stock and have increased their target prices, reflecting their positive expectations for BPCL’s future performance.
ICICI Securities has revised its target price from Rs 445 per share to Rs 540 per share. This substantial increase in the target price suggests that ICICI Securities believes BPCL has the potential for significant appreciation in the market. The higher target price indicates their confidence in the company’s ability to deliver robust financial results and gain investor interest.
Similarly, Nomura Research has raised its target price to Rs 455 per share, representing a 20 percent increase from its previous target of Rs 379 per share. This upward revision in the target price signifies Nomura’s optimism about the stock’s future growth prospects and market value.
The positive sentiment from ICICI Securities and Nomura Research can be attributed to BPCL’s impressive earnings performance, which surpassed expectations. The company’s success is mainly attributed to substantial over-recoveries in retail fuel marketing. Over-recoveries refer to the situation when fuel prices charged to consumers exceed the costs incurred by the company in procuring and refining the fuel. This resulted in higher profit margins for BPCL in its retail fuel segment.
Additionally, improved refining margins have also contributed to BPCL’s positive earnings results. Refining margins refer to the difference between the cost of crude oil processed by the company and the prices of the refined products it sells. The increased refining margins indicate that BPCL was able to refine crude oil more efficiently and profitably during the period.
Furthermore, BPCL’s advantage from discounted Russian crude has likely played a role in its improved performance. The availability of discounted crude oil from Russia could have positively impacted the company’s cost of raw materials, leading to better overall financial results.
Overall, the optimistic views from ICICI Securities and Nomura Research are based on BPCL’s strong financial performance, driven by over-recoveries in retail fuel marketing and improved refining margins. As with any investment decision, investors should carefully consider the assessments of different brokerage firms and conduct their research before making any investment in BPCL or any other stock.
According to Kotak Institutional Equities and Jefferies India, there has been a recent decline in earnings momentum for Bharat Petroleum Corp Ltd (BPCL) due to certain factors affecting the company’s operations.
One of the contributing factors to the decline in earnings momentum is a reduced discount on Russian crude oil. BPCL had likely been benefiting from discounted prices on Russian crude, which helped improve its refining margins. However, as the discount on Russian crude diminishes, the company’s refining margins may come under pressure, impacting its profitability in the refining segment.
Additionally, increasing oil prices have also had an adverse effect on BPCL’s marketing operations. As oil prices rise, the costs of procuring and marketing fuel products increase, which may result in reduced profit margins in the marketing segment.
The combination of these factors has resulted in a decrease in BPCL’s earnings momentum, affecting its overall financial performance.
Furthermore, Kotak and Jefferies expect that as profits return to a more normal state, BPCL may experience a significant rise in net debt starting from FY25E (Financial Year 2025E). This increase in net debt could be attributed to various factors, such as reduced profitability impacting cash flow and additional borrowing for funding operations.
Moreover, BPCL is anticipated to undergo a considerable increase in capital expenditures (capex) compared to previous levels. The expected 2-3x increase in capex indicates that the company may be investing heavily in its future growth and expansion plans. These investments could be related to upgrading facilities, expanding operations, or diversifying its business.
The rise in net debt and higher capex may have implications for BPCL’s financial health and liquidity position. It could also affect the company’s ability to meet its debt obligations and undertake further investments in the future.
Overall, Kotak Institutional Equities and Jefferies India foresee challenges for BPCL in the near term due to the decline in earnings momentum, the reduced discount on Russian crude impacting refining, and the impact of increasing oil prices on marketing operations. The projected rise in net debt and substantial increase in capex could add further complexities to the company’s financial outlook. Investors should closely monitor these developments and assess the potential risks before making any investment decisions related to BPCL.
From Kotak’s perspective, Bharat Petroleum Corp Ltd (BPCL) seems to have made significant progress in recovering a substantial portion of the losses incurred in the previous year. This improvement raises the possibility of a potential reduction in retail fuel prices. As the company’s financial health has shown signs of improvement, there may be room for BPCL to consider adjusting fuel prices to benefit consumers.
However, despite the progress in addressing debt-related concerns, Kotak remains worried about the lack of pricing freedom for oil marketing companies (OMCs) like BPCL. The lack of pricing freedom means that OMCs may have limited control over setting fuel prices and could be subject to government regulations or market dynamics that could impact their profitability.
On the other hand, Nomura’s outlook for BPCL and the refining industry remains positive. They expect the refining segment to perform well, supported by a strong 2.2 million barrels per day (b/d) year-on-year increase in global oil demand. This rising demand for oil globally is likely to drive increased refining activities and, consequently, benefit companies like BPCL.
Nomura also anticipates strong demand for refined products in China, driven by an uptick in air travel and petrochemical (petchem) industries. Increased air travel indicates a recovery in the transportation sector, which is a significant consumer of refined products. Additionally, a surge in petchem demand suggests growing economic activities and industrial production.
Furthermore, Nomura highlights a favorable supply-demand scenario and a significant drawdown in global product inventories. A favorable supply-demand balance indicates that the market demand for refined products is well-matched with available supply, which could help maintain stable refining margins for BPCL.
Overall, Nomura’s positive outlook on the refining industry, coupled with expectations of increased global oil demand and robust refining activities, bodes well for BPCL’s prospects. However, Kotak’s concerns over pricing freedom and other regulatory factors indicate that the company may still face challenges despite the positive industry trends. As always, investors should carefully consider these factors and conduct their research before making investment decisions related to BPCL or other OMCs.
According to the latest report from Nomura to its investors, they have significantly raised their forecast for Bharat Petroleum Corp Ltd (BPCL) FY24F (Financial Year 2024 Forecast) EBITDA by 81%, taking into account BPCL’s strong performance in 1QFY24. They are maintaining their broadly optimistic outlook for FY25F EBITDA. Nomura’s conservative estimates for refining and marketing margins factor into their positive stance, and they reiterate a “Buy” recommendation based on the robust refining outlook. The current stock valuation stands at 1.2x FY25F Price-to-Book (P/B) ratio.
On the other hand, ICICI Securities foresees a normalization of marketing margins and softer gross refining margins (GRMs) in the latter part of FY24E. Despite adopting conservative assumptions for both segments, FY24E earnings are expected to surpass the current street estimates by a substantial margin of 17% to 27%. The brokerage firm has revised FY24E and FY25E earnings per share (EPS) by 15.5% and 22.9%, respectively.
ICICI Securities remains optimistic about BPCL, projecting a peer-leading 113% EPS Compound Annual Growth Rate (CAGR) for BPCL (consolidated) over the period from FY23 to FY25E. This projection considers the significant fall in EPS (69%) experienced in FY23. Additionally, the potential revival of progress at the Mozambique mega project is seen as an added value driver. At ICICI Securities’ revised estimates, the valuations for BPCL are considered unchallenging, with the stock trading at just 5.3x EPS and 5.1x EV/EBITDA based on FY25E.
As with any investment decision, investors should be aware that the views expressed in the reports are those of the respective brokerage firms and not of the website or its management. It is always advisable to consult with certified financial experts before making any investment decisions, considering individual financial goals, risk tolerance, and market conditions.
