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Shares of Bharat Petroleum Corp. Ltd (BPCL) have corrected more than 5% in the last two trading sessions. Analysts attribute this to investors’ disappointment with the latest dividend. The Street was banking on a generous dividend payout after BPCL’s recent asset sales.

BPCL had approved the divestment of its entire 61.65% stake in Numaligarh Refinery Ltd (NRL) for 9,876 crore to a consortium of Oil India Ltd, Engineers India Ltd and the Assam government. It also sold treasury shares of over 5,000 crore held by the BPCL Trust.

The company has, however, chosen to declare an interim dividend of 5/equity share, totalling a payout of around 1,100 crore. Of course, part of the proceeds of the NRL divestment was meant to be used to buy an equity stake in Bharat Oman Refineries Ltd ( 2399.6 crore for 36.62% stake sale). Nevertheless, even after adjusting for this, investors received a dividend of up to 21 a share. The company still has enough cash in hand, say analysts.

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However, analysts said the treasury share sale, NRL divestment and acquisition of Oman Oil’s stake in Bina refinery is all in preparation for the BPCL divestment. This will lead to greater value unlocking for investors, than a one-off dividend.

Apart from divestment, the fundamentals of the company too remain strong, as marketing margins are firm despite rising crude prices. Also, fuel demand has continued to grow.

Reports suggest that sales of petrol and diesel by public sector companies rose 5.3% and 7.4% year-on-year, respectively during the first half of March. Further, analysts at Emkay Global Financial Services Ltd said: “As per Q3FY21 numbers for petrol/diesel market share, BPCL gained 7bps/35bps market share respectively."

Analysts at Credit Suisse said there is ample scope for value accretion post disinvestment as the acquirer can boost Ebitda (earnings before interest, tax, depreciation and amortization) by $450 million-plus.

This hinges on the potential acquirer being able to reduce refining costs, increase the productivity of marketing outlets, and increase non-fuel revenues. “The stock should re-rate as BPCL gains market share from IOCL (Indian Oil Corp. Ltd) and HPCL (Hindustan Petroleum Corp. Ltd) and non-fuel revenues command higher multiple," the analysts said.

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