ICICI Securities

Target: ₹544

CMP: ₹433.05

We resume our coverage on BPCL with BUY rating and target price of ₹544/share. Our target price assumes successful bid price in privatisation of ₹609/share (8x FY22E EV/EBITDA) on 56 per cent of investors’ holding and ₹462/share (6x FY22E EV/EBITDA) on balance.

We estimate FY22 core GRM recovering to $3.5/bbl from $1.5/bbl in 9MFY21, but net marketing margin fall to ₹2.5/l from ₹3.07/l in FY21. We expect global demand recovery and refinery closures to drive GRM recovery. Net marketing margin is ₹0.09/l now, but we are hopeful of price hikes/excise cut boosting net margin to ₹2.5/l.

We have raised our FY21E EPS (up 250 per cent y-o-y) by 61 per cent due to: Factoring product inventory gain of ₹4,760 crore (₹2,420 crore in 9M and ₹2,340 crore in Q4) vs nil earlier; upgrade in net auto fuel marketing margin to ₹3.07/l from ₹2.5/l earlier; and 3) cut in interest cost by 55 per cent to factor in the steep fall in 9M.

We have also raised our FY22 EPS estimate by 14 per cent due to upgrade in net marketing margin to ₹2.5/l vs ₹2.25/l earlier; and cut in interest cost by 46 per cent as NRL stake sale and treasury shares sale reduce debt.