Bharat Petroleum Corp. Ltd (BPCL) shares fell as much as 3.2% in intra-day trade on Thursday, i.e. 21 November, after the cabinet gave an in-principle approval to the government to sell its stake in the company.
The BPCL stock hit an intra-day low of Rs 527.05 apiece on Thursday. At 12:14 pm, the shares were down 1.5% to Rs 536.65 apiece. Notably, the stock has returned over 64% to investors in the last one year.
Finance minister Nirmala Sitharaman on Wednesday announced that the government will sell its 53.29% stake to a strategic buyer, ceding management control. The proposed sale will, however, exclude the strategic Numaligarh Refinery Ltd (NRL) in Assam, which will be later sold to another state-run firm, given India’s need to secure fuel supplies for security forces in the north-east.
“A carve-out has been made of NRL,” she said. “It will be moved out of BPCL and will be retained by a government-owned firm, before disinvestment.”
Brokerage firm Nirmal Bang, in a morning note to its clients, mentioned that a share swap for taking over the NRL stake could imply some potential downside to BPCL’s overall valuation, reported the Hindu Business Line. If NRL is valued at less than 10 times its price-to-earnings ratio, it would impact BPCL’s earnings per share by Rs 6, said the brokerage firm. It has, therefore, given a stock price target of Rs 512 for BPCL.
“Our replacement cost-based value of Rs 583 for BPCL includes Rs 62 per share or 10.6%. Our Base case PE (price to earning) based target price of Rs 512 includes a similar value for NRL. The stake sale, excluding NRL, will only impact government receipts,” Nirmal Bang said.
G. Chokkalingam, founder and managing director, Equinomics Research, meanwhile told another media house that given the current scenario, investors should stay put for now and wait for suitors to queue up. “It is only then that the true value of these CPSEs (central public sector enterprises) will be discovered, helping the stocks gain more ground, especially in the case of BPCL,” he added.
Meanwhile, global brokerage firm Morgan Stanley was positive on oil marketing companies after the BPCL divestment announcement. “Stake sale by the government could drive cost efficiencies for oil marketing companies in the medium term,” said the brokerage.
Morgan Stanley added that the divestment can unlock $15-25 billion value for fuel marketers. It said it was especially ‘overweight’ on BPCL and Hindustan Petroleum Corp. Ltd (HPCL), but warned that upside risks to earnings per share (EPS) exist as these companies remained well supplied.
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