BPCL stock rose over 4% on Jefferies’ upgrade and target price was set at Rs 890.
“BPCL offers the greatest margin of safety compared to peak cycle multiples. Earnings are less affected by possible marketing loss of diesel till general elections. Upgrade to Buy with target price of Rs 890 and rate at 2.8x fwd. Jefferies “P/B for FY25 is 14% ROE,” said analyst Bhaskar Chakraborty.
Analysts have raised concerns over the possibility of government intervention in retail prices of petrol and diesel as OMCs’ marketing margins are higher than normal during December’s intense election season. “Despite the recent decline in margins, the government has not pushed for price cuts, increasing confidence in normative marketing margins for FY25,” he said.
OMCs recorded the highest multiples during 2014-17 as crude oil prices halved in 2015 as the government deregulated diesel prices, which they expect will lead to compound growth in marketing margins. “Assuming OMC multiples revert to historical highs following a Goldilocks outlook for comfortable oil prices and strong profitability, we could see +36%/+13%/-4% upside/(decline) for BPCL/IOCL/HPCL in CMP. there is.” Jeffries said.
Despite geopolitical developments in Gaza and disturbances in the Red Sea, oil prices have remained in the $75-$85 range since November. He added that unless OPEC+ changes its position from voluntary to mandatory compliance with stated production cut targets, it is unlikely that oil prices will rise meaningfully in 2024.
Jefferies has a Hold rating on IOCL with a target price of Rs 215 and an Underperform on HPCL. “Recently, OMC mgmt cited marketing losses in its diesel segment. This will hit HPCL’s Ebitda due to unfavorable refining:marketing ratio (0.54x FY25E), but BPCL and IOCL at 0.7x and 0.8x resp ratios will see a lower impact in FY25E if refining strength persists. Additionally, OMCs may be permitted to increase retail prices after the May elections to offset the negative impact,” the brokerage said.(Disclaimer: Recommendations, suggestions, views and opinions provided by experts are their own and do not represent the views of The Economic Times.)
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