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BPCL divestment: Bidding to turn competitive on participation of PE players

The government plans to divest its 52.9% stake in oil and gas behemoth BPCL. (Photo: Mint)Premium
The government plans to divest its 52.9% stake in oil and gas behemoth BPCL. (Photo: Mint)

  • The disinvestment process is currently in the bid evaluation stage. Though asset price discovery will take place after the bidding process is complete, analysts are targeting a stock price of 500 or more, given that both upstream and downstream assets are part of the deal

MUMBAI: The divestment of Bharat Petroleum Corporation Limited (BPCL) has long been on investors' radar. The focus will only sharpen now as the market tries to assess potential bidders to the entity. With Vedanta’s interest already known, news that certain well known private equity investors are also among the interested parties looking to acquire the government's stakes will boost competition and interest.

Apollo Global Management and Think Gas (promoted by I Squared Capital) are reportedly are among the interested parties. The interest evinced by these global investment management firms also reflects the good response the bidding process is receiving, boosting hope of better valuations.

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“The participation of marquee private equity players Apollo and I Squared with experience in the energy sector could heat up the competition," said analysts at Emkay Global

BPCL has a vast retail network--20% share in retail petroleum products business--and huge refining capacities, while hydrocarbon exploration and production (E&P) assets remain attractive for global players vying for a pie of the Indian fuel market.

From an acquirer’s perspective, Macquarie India says, the key attractions of BPCL in addition to the access to 17,000 fuel retail stations also are the gas stakes (BPCL holds stakes in Petronet LNG and Indraprastha Gas Limited as well as has made investments in Mozambique gas).

"We are buyers of BPCL into the upcoming privatization by the government, albeit fully acknowledging timing uncertainties and government privatization is to unlock Sum-of-the-Parts valuation," said Macquarie India.

BPCL’s disinvestment process is currently in the bid evaluation stage. Though asset price discovery will take place after the bidding process is complete, analysts have set a target price of 500 or more for the stock, given that both upstream and downstream assets are part of the deal.

Shares of the energy major traded at 396.20 today on the National Stock Exchange.

Apart from the valuations BPCL privatisation receives, new private owners can also can help the company boost cash flow generation through efficiency, capital reallocation, and lower cost leverage, say analysts. Emkay Global has maintained a positive view on BPCL.

Meanwhile, the outlook for oil marketing companies has been improving, given the rebound in fuel demand and the strong marketing margins. This should aid earnings growth and investor confidence in addition to triggers provided by progress on BPCL divestment.

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