BPCL share price rallies 20% in two days; should you buy or hold the stock?

The progress on BPCL’s sale is positive for OMCs in terms of deepening deregulation and profitability outlook.

BPCL share price soared 13 per cent to Rs 444.60 apiece on BSE in Friday’s range-bound session. Bharat Petroleum Corporation Ltd stock has rallied over 20 per cent from Wednesday’s close. According to the media reports, global energy majors, including Reliance Industries, have shown interest in buying out BPCL. In a recent development, Bharat PetroResources Ltd, a wholly-owned subsidiary of BPCL, has finalised senior debt financing of $14.9 billion for two train LNG projects. “The progress on BPCL’s sale is positive for OMCs in terms of deepening deregulation and profitability outlook. Given the tight fiscal situation, disinvestment would be of utmost importance to the government this year,” Emkay Global Financial Services said in a report.

The research and brokerage has retained a ‘buy’ rating on the stock. BPCL stock will have to jump nearly 22 per cent to touch the target price of Rs 480 pegged by Emkay Global Financial Services. “RIL can be a serious contender being mostly net debt free now and possibly include BP also as a partner. Other players are Aramco, ADNOC, Rosneft and ExxonMobil, as per the reports. With RIL deal not progressing, Aramco may now look at BPCL aggressively,” it said in a report.

In November last year, the government had decided to sell its 52.98 per cent stake in BPCL. It sought expressions of interest (EoIs) from potential acquirers, the deadline for which will end on July 31. “RIL with virtually nil consolidated net debt seems a serious contender. With 53% government stake and 26% open offer, it would require Rs 940 bn at Rs 550 price, but if BP participates, the same could be under Rs 500 bn,” Emkay Global said. It also added that if BPCL is acquired solely also, RIL could re-pitch the O2C business to Aramco at a higher valuation (considering BPCL’s 20% market share in India) and can eventually self-fund BPCL. “A delay in RIL-Saudi Aramco deal raises the probability that Aramco may be more aggressive now,” the brokerage firm said.

Moreover, Oil Minister Dharmendra Pradhan also clarified that there is no going back on the decision to privatise the country’s largest oil marketing company BPCL in view of the slump in global energy prices. “What decision we have taken on BPCL, we are firm on that,” Pradhan iterated.

While another research and brokerage firm ICICI Direct has advised to ‘hold’ BPCL stocks with a target price of Rs 350, a downside of 11 per cent from the previous close. “Crude throughput is expected at 5.9 MMT, a decline of 29.7% QoQ as demand was significantly lower during the lockdown,” it said in a report.

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