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BPCL significantly undervalued compared to global peers: Edelweiss Securities

MUMBAI: Brokerage firm Edelweiss Securities sees a further upside in shares Bharat Petroleum Corp Ltd given that it is significantly undervalued compared to global peers. The brokerage house has raised its target price for shares of the company to 632 rupees per share, a gain of nearly 29% from the current market price.

Shares of Bharat Petroleum Corp Ltd have surged 65% over the past month after reports emerged that the Centre planned to sell its stake in the company.

Cogencis had earlier reported that the government was likely to initiate the process of strategic sale in Bharat Petroleum Corp, the country's second-largest public sector refiner, by November-end. As per latest available shareholding data, the government owns 53.29% stake in the company.

In August, Reliance Industries Ltd announced that Saudi Aramco would acquire a 20% stake in the company's oil-to-chemicals business at an enterprise value of $75 bln. The brokerage believes that the deal, expected to be done at 7.5 times the expected enterprise value to operating profit ratio for 2020-21 (Apr-Mar), would provide "ample room for a sector re-rating" in the event of Bharat Petroleum Corp's privatisation.

The government's intent to privatise or strategically divest stake is evident by its plans to hold a roadshow overseas by end-October, the brokerage house quoted a Bloomberg as saying.

Another positive factor for the company, which has refineries that can process low quality crude, is the expected doubling of gross refining margins at its Kochi refinery to $8.2 per barrel by 2020-21 and likely cost savings from petcoke gasification, the note said.

Roadblocks for the deal could emerge from several complex regulatory hurdles that the company will face, such as tax breaks for its north eastern refineries, subsidy on liquefied petroleum gas, preferential access to domestic crude, and approval of partners in joint venture projects.