India is the third largest petroleum consumer in the world after the US and China with consumption of ~5.2kbopd.
The possible strategic divestment of oil marketing companies (OMCs) to private parties is generally filled with fantasies of rich valuations. After all, a stake in any of the OMCs provides the buyer ready access to the third largest and one of the fastest growing petroleum markets globally. We analysed various valuation methodologies for BPCL, to arrive at a target price range of INR518-593/share.
In this note, we reiterate the same and maintain neutral on the stock due to several complexities involved.
India is the third largest petroleum consumer in the world after the US and China with consumption of ~5.2kbopd.During 2013-18, consumption of petroleum products in India came in at ~6.4% CAGR as against 1.6%/5.2%/-3.5% for the US/China/ Japan respectively.
In CY19 YTD, India witnessed growth of ~3% in consumption of petroleum products with an increase in petrol/diesel consumption at 8%/3% in CY19YTD (CAGR of 13%/4% in 2013-18).
India’s per capita car ownership is dismally low at 22/1,000 v/s 980/1,000 for the US and 164/1,000 for China. However, rise in urbanisation combined with better road connectivity is expected to result in sustained high growth of auto fuel consumption, despite the onslaught of CNG and EVs.
Most metros are well proliferated in terms of retail outlets.
Therefore, it is not possible for a new player to open outlets in metro cities considering the high land cost.
We value the stock at 2.1x FY21E PBV, at par with FY15-18 which reflected true deregulation amidst comfortable oil prices, and arrive at a target price of INR533/share. Despite the upgrade in multiple, we do not see much upside in the stock. Hence, we maintain Neutral on the stock.