Delay in disinvestment put pressure on BPCL shares

Analysts at JM Financial Institutional Securities Ltd. said in a report, “BPCL’s Q3 Ebitda and Profit after Tax were significantly lower than our and consensus estimates, reflecting marketing inventory loss on account of reduction in excise duty with effect from November 4, 2021. happened because of it.” -Edge core marketing margin appears to be weaker than expected,” he said.

As such, shares of BPCL have declined by 3.8% as compared to a fall of 2.5% in the Nifty 50 index. It should be noted that the refining environment remains strong and hence, investors can expect the refining business to perform well in the near- to medium-term. BPCL’s refining segment performed well in the third quarter, reporting higher than estimated Gross Refining Margin (GRM) of $9.7 per barrel.

While this is a good thing, the progress and timeline on the possible disinvestment of the government’s 52.9% stake in the company is an important factor for BPCL investors. As things stand, the privatization of BPCL is not expected in this financial year and will be carried forward till FY23.

“There has been limited progress in selling off BPCL’s upstream portfolio or selling its stake in Petronet LNG and Indraprastha Gas. The government is discouraging petrol and diesel with excise duty at historic highs, while subsidizing the city’s gas delivery players, said analysts at Jefferies India.

Besides, crude oil prices are firm, with Brent crude trading at $90 a barrel. With the upcoming elections in Punjab and Uttar Pradesh, analysts expect oil marketing companies to refrain from increasing the retail prices of petrol and diesel.

This can adversely affect their marketing margins.

To be sure, the shares of BPCL have outperformed those of Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOC) in the past one year. Thus, the large special dividend paid in September compensates for BPCL’s poor performance to that extent. The good thing is that the valuation of BPCL’s stock is relatively low-demand. Needless to say, investors here will be closely following the privatization news flow and the likely valuation that the deal will eventually achieve.