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Business News/ Markets / Stock Markets/  BPCL share price scales 52-week high: 7 key reasons why Jefferies expects more than 30% gains for the stock
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BPCL share price scales 52-week high: 7 key reasons why Jefferies expects more than 30% gains for the stock

Stock market today: BPCL share price gained more than 5% in the morning trades on Friday to scale 52-week highs. Jefferies has upgraded BPCL to ‘BUY’ with at target price of ₹890. Jefferies analysts said that stock trades at steepest discount to its past peak and can see more than 30% upside.

BPCL share price gains more than 5% in morning trades to scale 52 week highs. (Photo: Reuters)Premium
BPCL share price gains more than 5% in morning trades to scale 52 week highs. (Photo: Reuters)

Bharat Petroleum Corporation share price gained more than 5% in  morning trades to scale 52-week highs.   Jefferies India Pvt Ltd has upgraded the BPCL stock to BUY with a target price of 890 . Since the BPCL share price is trading at close to 670 levels, the Jefferies target price for BPCL indicates more than 30% upside for the stock.

Jefferies analysts said that range bound oil prices and government staying away from auto fuel pricing have seen OMCs (Oil Marketing Companies) rally 90-130% since October. Red Sea disturbances have strengthened refining margins. BPCL as per Jefferies offers the largest margin of safety when compared to its peak cycle multiple. Its earnings are impacted less by possible marketing losses in diesel till the national elections. 

Here are 7 key reasons why Jefferies expects more than 30% upside 

1.Government has not intervened in retail pricing: Against a fear of a possible govt intervention in retail price of gasoline and diesel as marketing margins of Oil marketing companies rose ahead of normative levels in a heavy election season in December, the government did not intervene. Though margins have come off in recent times, government has stayed away from pushing a price reduction raising confidence in normative marketing margins in FY25 estimated.

Also read- Gujarat Gas share price falls 6%; several brokerages downgrade stock after Q3 result

2. Rangebound oil price: Oil price has been in $75-85 a barrel range since November despite the geopolitical developments in Gaza and the Red Sea disturbances despite the latter accounting for 10% of global crude shipments. Meaningful increase in oil price seems unlikely in CY2024 feels Jefferies unless OPEC+  changes its stand from voluntary to compulsory adherence of stated production cut targets.

3. Refining strength on Red Sea disturbances positive for OMCs: Red Sea route accounts for 14% of global refined product supplies. Tanker transit by the Red Sea has fallen over 50% since December. This has led to longer shipping times and delayed supplies driving up diesel spreads 40% since December. Forward curve suggests diesel spreads could remain elevated into 1QFY25, said analysts at Jefferies.

4. Marketing losses in diesel: OMCs could be allowed to raise raise retail prices after the elections in May to offset the negative impact.

 Marketing margins on gasoline/diesel have collapsed from   10 and 3.5 per litre respectively in December to 5.5 and 1.3 per litre currently.  Diesel crack strength has turned spot marketing margin negative 1.5 per litre currently (based on Jefferies calculations).  The same will hurt Hindustan Petroleum Corporation's earnings before interest tax depreciation and amortisation (Ebitda) the most due to its adverse refining to marketing ratio (0.54x in FY25 estimated). BPCL and IOCL with ratios of 0.7 times and 0.8 times respectively will see lower impact in FY25 if the refining strength sustains. Also, Jefferies expects OMCs could be allowed to raise retail prices after the elections in May to offset the negative impact.

5. Peak-cycle multiples leave room for further upside: OMCs enjoyed peak multiples over Calendar year 2014-17 on halving of crude price,  hopes of compounded growth in marketing margins as government deregulated diesel price in 2015. Jefferies analysts say that assuming OMC multiples go back to this past peak on Goldilocks outlook of comfortable oil price and strong profitability, they see more than 36% upside to BPCL from current market price.

Also Read- Polysil Irrigation Systems share price makes a tepid debut, stock lists with 3.7% premium at 56 apiece on NSE SME

6. Blue-sky scenario: In the past, govt allowed OMCs to make integrated margins across refining and marketing within a reasonable range. Assuming a break from the past wherein OMCs are allowed to make normative marketing margins in FY25 in addition to benefiting from elevated refining profitability, Jefferies sees 43%upside for BPCL.

7. BPCL trades at steepest discount to its past peak: BPCL offers the largest margin of safety when compared to its peak cycle multiple. Its earnings are impacted less by possible marketing losses in diesel till the national elections, said Jefferies.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

 

 

 

 

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 16 Feb 2024, 10:36 AM IST
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