Union govt eyes ₹90,000 crore from BPCL stake sale

The government is looking to raise around ₹90,000 crore from the privatization of Bharat Petroleum Corp. Ltd (BPCL) at about double the valuation the stock is trading at, as the Centre seeks to benchmark its price to some of its publicly traded rivals, an official said.

The government’s target price for its 52.98% stake is also based on the value of BPCL’s assets, the government official said, requesting anonymity.

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“If anybody thinks that the government will do the BPCL valuation only on the basis of its share price, then they are wrong. The government has to look at the asset valuation also. It will also have to look at the share price of the companies in the peer group,” he said. “The government should get at least ₹90,000 crore. BPCL’s assets are so vast, this money ( ₹45,000 crore) can easily be realized by selling BPCL’s assets without impacting the main core business.”

Besides Vedanta Group, two American funds—Apollo Global and I Squared Capital—have reportedly submitted their expressions of interest for India’s second-largest fuel retailer. The department of investment and public asset management (DIPAM) is managing the privatization of BPCL, while Deloitte Touche Tohmatsu India is the transaction adviser.

The BPCL stock has underperformed market benchmarks, like some other stocks of state-run companies, despite markets hitting new highs. BPCL’s shares rose ₹2.05, or 0.54%, to ₹383 on Friday, while the Sensex rose 0.25% to 47,868.98.

“We believe BPCL has a potential value of 2x over current market price in the long term, if the government offers stable taxation regime for petrol and diesel sales, as their 16,000 plus retail outlets can be valued at more than ₹80,000-100,000 crore based on RIL-BP and other similar global deal on retail outlets stake sales. Moreover, on replacement cost basis refinery and terminal/depots network can potentially add enterprise value of around ₹40,000 crore each, over and above value from other businesses like product pipelines, LPG, industrial fuel, ATF, lubes, gas sales and stakes in IGL and Petronet LNG,” said Gagan Dixit, vice president, institutional equity research, Elara Capital.

“However, 2020 witnessed huge tinkering with excise duties in petrol and diesel, which resulted in the doubling of excise duty in diesel. That has impacted the valuation of BPCL and raises concerns of potential bidders as costlier petrol and diesel would help grow competitive fuels like direct LNG use on trucks, electric vehicles, CNG sales at the expense of petrol and diesel demand growth,” he added.

This share sale is essential for meeting the government’s record ₹2.1 trillion divestment target that the finance ministry announced in the budget for 2020-21. India has so far raised around ₹12,225 crore from divestment proceeds.

“Disinvestment process is being undertaken by DIPAM,” a spokesperson for India’ petroleum and natural gas ministry said in an emailed response to a query, adding that the query should be sent to the “concerned department”. Queries emailed to the spokespersons for the finance ministry, DIPAM, Vedanta Group and I Squared Capital on Monday evening remained unanswered till press time.

The successful buyer will not only have a controlling stake in BPCL but will also get access to a 25.77% market share in India’s fuel retailing segment, besides 15.3% of refining capacity. It operates refineries in Mumbai, Kochi, Bina and Numaligarh, with a combined capacity of 38.3 million tonnes per annum.

A Deloitte spokesperson in an emailed response said: “We are bound by confidentiality obligations and are unable to comment on client-specific matters.”

A external spokesperson for Apollo Global said in an emailed response: “Apollo Global wouldn’t be commenting on the query sent.”

Mint had earlier reported that Deloitte informed all the bidders about whether they had qualified for the second stage of the sale process or not. In the second stage, business transfer agreements will be signed with qualified bidders and site visits will be organized for BPCL facilities. The bidders will be allowed to inspect the OMC’s books before submitting their financial bids.