Brokerages remain mixed on state-run Bharat Petroleum Corp (BPCL) after the oil marketing firm (OMC) posted a loss of ₹6,148 crore in the April-June quarter (Q1Y23). The loss came on the back of a freeze on retail prices of petrol and diesel despite the rise in crude oil prices. The firm had reported a profit of ₹3,214 crore in the same quarter last year.
However, the company's revenue from operations surged 54 percent YoY to ₹1.3 lakh crore from ₹89,688.98 crore in the year-ago period. The company also informed that it incurred a loss of ₹966 crore due to fluctuations in the exchange rates. Meanwhile, its cost of materials consumed more than doubled to ₹63,615 crore in q1FY23 from ₹26,805 crore in the year-ago period due to the surge in crude oil prices.
Stock price trend
The stock lost 3 percent on August 8, after the company announced its June quarter results. However, the stock rose as much as 7 percent in July 2022. In 2022 so far, it has fallen 15 percent and is down 22 percent in the last 1 year.
However, despite the loss in Q1, analysts remained mixed in their outlook for BPCL. While some are advising investors to give up and sell the stock some are still bullish on the scrip.
Bullish views
Brokerage house Ambit Capital remained bullish on BPCL, reiterating their ‘Buy’ call after the quarterly results. However, the brokerage firm has trimmed the target price by 5 percent to ₹425 per share.
“Reduction in negative marketing margin on diesel and petrol due to softness in crude oil and refining cracks would provide support. Also, highest refinery utilization and middle distillates production among OMCs will bode in its favour,” said the brokerage. They added that the marketing margin on diesel would remain negative in the near term due to low middle distillate inventories globally.
Another brokerage house ICICI Securities had an 'add' call on the stock with a target price of ₹358.
Although the company had a bad June quarter, ICICI Securities believes FY24 will bring better tiding for BPCL. “Despite the miss this quarter, we are encouraged by the strength in the company’s refining metrics, robust marketing volumes and relatively stress-free balance sheet. Consolidated earnings are also likely to see the benefit of improved refinery metrics,” noted the brokerage. The stock is seen as a well-balanced downstream energy play, with reasonably complex refining capacity, a large albeit ‘at risk’ upstream segment and a marketing presence, it added.
On the June quarter results, the brokerage said that BPCL reported losses even as Revenue from operations rose to ₹1.38 lakh crore from ₹89,688 crore in April-June 2021. BPCL said that it earned GRM of $27.51 per barrel in the quarter as against a $4.12 per barrel gross refining margin a year back, however, the same was negated by losses incurred after holding fuel prices despite the rising cost, explained ICICI.
HDFC Securities also retained its 'buy' call on the stock with a target price of ₹390 post the June quarter earnings.
"BUY rating on Bharat Petroleum is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins over the coming 18 months, and (3) gradual improvement in marketing margins for FY23-24 vis-à-vis FY22 levels," stated the brokerage.
Contrarian views
Meanwhile, Prabhudas Lilladher downgraded BPCL to ‘hold’ from ‘buy’ and cut its target price to ₹331 from ₹416 earlier.
"The company’s Q1FY23 standalone financials include results of a wholly owned subsidiary, Bharat Oman (BORL), hence is not comparable. We cut FY23/24E estimates by 13-39 percent as we lower marketing margins, while we increase BORL’s GRMs (gross refining margin) assumption," noted PL.
Marketing margins will likely be under pressure, as low product inventory and lower exports from China and Russia may keep product spreads high, it cautioned.
Kotak Institutional Equities predicts further downside in the stock. It has a 'sell' call on BPCL with a target price of ₹245. The brokerage is negative on BPCL as refining margins decline and retail prices stay frozen, losses are rising. It also stated that OMCs are now becoming ‘un-investable’ while privatization plans take a back seat.
“In our view, unless oil prices decline sharply, and as elections approach in 2024, OMCs’ pricing power will be limited. With large under-recoveries, and uncertainty on compensation, OMCs have become ‘un-investable’ in the near term, in our view,” Kotak Securities said. The brokerage added that BPCL has traded at a premium valuation compared to peers but with privatisation not likely soon, that seems unsustainable," said Kotak.
Finally, Motilal Oswal maintained a 'neutral' call on the stock with a target price of ₹340 per share, implying very little upside. It noted that while softening of crude oil prices may bode well for the stock, but also drew attention to moderating GRMs which may be a cause of concern if it corrects further.
