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Emkay Global
BPCL (Buy)
Target: ₹480
CMP: ₹400.05
Our deep-dive analysis of BPCL is through the lens of a strategic buyer who will give due consideration to: 1) significant capital locked in ongoing projects and thus long-term normalized earnings; 2) operational autonomy enabling deep sweating of assets and cost optimisation; and 3) financial autonomy driving superior capital allocation.
BPCL's ₹33,000 crore of downstream capex presently delivers little. If flawlessly executed, we estimate a $1.5/bbl GRM upswing by substituting high-margin propylene over LPG, optimising gasoline yield and prioritising a similar PRFCCU in Mumbai. Petchem will separately add ₹2,600 crore in EBITDA through FY25.
Operational autonomy of a PSU asset will give significant scope to drive productivity improvements. Private ownership with these levers could generate ₹24,000 crore in mid-cycle EBIDTA through FY25. This implies a 30 per cent earnings CAGR vs FY20 and puts BPCL's FV at ₹900/sh in FY24 or ₹640 discounted back. This is ₹160/share higher than our existing TP of ₹480 and reflects the strategic premium or management alpha.
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