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Business News/ Companies / News/  BPCL shares hits 1-year high after government initiates divestment process
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BPCL shares hits 1-year high after government initiates divestment process

Shares of BPCL rose to Rs482.4 apiece, up 6% on the Bombay Stock Exchange
  • The board of BPCL had approved sale of the firm's holding of 61.65% in Numaligarh Refinery Ltd
  • The sale of NRL is considered to be the first step towards disinvestment of BPCL. (Mint)Premium
    The sale of NRL is considered to be the first step towards disinvestment of BPCL. (Mint)

    Shares of Bharat Petroleum Corporation (BPCL) hit a 1-year high of Rs482.4 apiece, up 6% on the BSE, after its board approved to sell the firm's holding in the Numaligarh Refinery Ltd (NRL) for Rs9,878 crore as part of the divestment process.

    The country's second-biggest state refiner is to sell its 61.65% holding in Numaligarh Refinery to a consortium of Oil India Ltd. and Engineers India Ltd. and may also include the state government of Assam, according to an exchange filing made after market hours on Monday.

    Analysts at Emkay Global consider the development as an important milestone in BPCL's disinvestment process, expected to be completed by early second quarter of fiscal 2022.

    Valuing on NRL's annual earnings before interest, taxes, depreciation and amortization (Ebitda) and an enterprise value (EV) of Rs14,740 crore, it sees the transaction's value at 3.6-4.7 times EV/Ebitda; it is lower than the ballpark rate of 5-7 times and 8-10 times, respectively. The brokerage has a buy rating on the stock.

    Oil India currently holds 26% in Numaligarh Refinery, which operates a 3 million-tonne-a-year oil refinery in Assam. The refinery is being expanded threefold to meet the region's growing fuel demand. Assam state government owns 12.35% in the company.

    The sale of NRL is considered to be the first step towards disinvestment of BPCL. In her Budget speech, finance minister Nirmala Sitharaman had said, ''a number of transactions namely Bharat Petroleum Corp Ltd, Air India, Shipping Corp. of India, Container Corp. of India, IDBI Bank, BEML Ltd, Pawan Hans, and Neelachal Ispat Nigam Ltd, among others, would be completed in 2021-22.'' The government has already received multiple EoIs for privatization of BPCL, Air India, and Pawan Hans.

    Motilal Oswal Financial Services expect the company to have incremental cash of Rs7,480 crore, which may either be used to reduce BPCL's consolidated net debt in FY2022 to Rs40,800 crore or pay incremental dividend of Rs38 per share, in addition to the interim dividend of Rs16 per share announced in December 2020 quarter.

    "Ascribing the aforementioned deal value of 7.5 times EV/Ebitda to its refining business, our sum of the parts suggests a standalone business value of Rs400 per share at 8 times FY2023 estimated ebitda for the marketing and pipeline business, with additional value of investments of Rs200 per share. Thus, our sum of the parts derived valuation for BPCL stands at Rs600 per share," the brokerage said.

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    Published: 02 Mar 2021, 02:20 PM IST
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