Buy This Large Cap State Run ONGC Stock, Shares Likely To Gain 19%, Says HDFC Securities

HDFC Securities has rated the Bharat Petroleum Corporation Limited (BPCL) BUY with a target price of Rs 365 per share. According to the brokerage's given target price, the stock has the potential to jump 19% from its current market price. BPCL is a large-cap state-run - "Maharatna" - ONGC company with a market cap of Rs 67,192.60 crore.

Brokerage in the report has stated, "Q2FY23 EBITDA stood at INR 14bn, which came in above our estimated loss; however, the company reported a loss of INR 3bn, owing to weak performance from the marketing segment, higher interest cost and inventory loss. A one-time grant of INR 55.8bn towards LPG under recovery for the FY22 and H1FY23 period supported earnings. Reported GRMs were at USD 16.8/bbl (broadly in line)."

Stock Outlook & Returns

The stock last traded at Rs 306.85 per share, 0.94% down compared to its previous close of Rs 309.75 per share on NSE. The stock recorded its 52 week high at Rs 434 in November 2022, and its 52-week low at Rs 288.05 in October 2022, respectively.

The stock has given 0.54% negative return in the past 1 week. In the past 1 and 3 months, it has given 0.18% and 5.77% negative returns , respectively. In a year, the stock fell, giving a negative return of 28.72%. The stock in the past 3 and 5 years, it gave has given 38.97% and 41.23%, respectively.

Refining

BPCL's reported crude throughput, including the Bina refinery, was at 8.8mmt (-9% QoQ), likely impacted by planned shutdowns. The overall GRM stood at USD 16.8/bbl, with Mumbai refinery GRM at USD 10.9/bbl, Kochi refinery GRM at USD 18.4/bbl and Bina refinery GRM at USD 24.5/bbl. We estimate GRM for FY23/24/25E at USD 9.3/8.8/9 per bbl for BPCL and USD 10/9.5/9.8 per bbl for the Bina refinery.

Marketing

Domestic marketing sales volume was at 11.4mmt (+15% YoY, - 3% QoQ). Blended gross margin stood at INR -0.3/lit in Q2, impacted by the pause in the revision of auto fuel retail prices and marketing inventory loss of INR 3.8bn. "We expect a blended gross margin of INR 3/3.4/3.5 per lit in FY23/24/25E respectively," the brokerage has said.

Change in estimates

"We cut our FY23/24E EPS estimates down by 9.1/8.7% to INR 26/35.8, to factor in weakness in marketing margins for FY23/24, partially offset by higher GRM assumption. Our TP is revised to INR 365/sh to also factor in a higher debt assumption over FY23/24," HDFC Securities has said.

SOTP-based valuation

Commenting on the valuation of the stock, HDFC Securities said, "Our target price comes to INR 365/sh (5x Mar-24E EV/e for standalone refining business, 6x Mar-24E EV/e for marketing business and pipeline businesses, and INR 151/sh for other investments). The stock is currently trading at 8.7x on FY24E EPS."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.