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Prabhudas Lilladher
BPCL (Buy)
CMP: ₹382.15
Target: ₹466
Media reports suggests that the government is looking to divest its 53.29 per cent stake in BPCL to IOCL or even private players. BPCL is the second largest oil marketing company (OMC) after IOCL and is one of the best managed PSU with presence across refining (33.2 mtpa or 13 per cent of Indian refining), fuel retailing (14,977 stations or 23 per cent of total outlets), E&P stakes in Mozambique, Brazil, Russia, etc, along with city gas distribution (CGD) stake in 17 geographical areas. Besides, BPCL is one of the promoters of IGL, Petronet, etc. In this note, we look at various scenarios in terms of ownership change and its impact on competition landscape of India.
We believe divestment of BPCL to private sector will help maximize revenue for the government (₹84,700 crore). Divestment to IOCL will create a behemoth although it is unlikely to alter market dynamics in the near term. While divestment to IOCL is the easy way out, real price discovery of BPCL will happen with stake sale to foreign/private players. Sale to IOCL will attract reasonable premium as HPCL transaction was done at about 18 per cent premium. We remain constructive on OMCs as they are well placed to benefit from benign crude oil prices and GRM improvement from IMO 2020 implementation. Reiterate BUY.
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