BPCL’s privatization will be pushed forward to FY23

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Bharat Petroleum Corp. Limited’s (BPCL’s) December quarter (Q3FY22) earnings informed on Monday were below presumption.

The state-run oil marketing company (OMC) stand-alone Ebitda, or earnings before interest, taxes, depreciation, and remuneration, stood at ₹4,213 crores and went down 2% year-on-year and 6% progressively.

Analysts from JM Financial Institutional Securities Limited report emphasized on BPCL Ebitda Q3 and profit after tax were significantly below our consent approximately due to marketing checklist loss on account of excise duty cut with effect from 4 November 2021. Further, the suggested basic marketing margin seems to be weaker than anticipated

BPCL’s shares have declined by 3.8% since the results vis-à-vis a 2.5% down in the Nifty50 index. It must be noted that the refining environment remains stable and therefore, investors can expect the refining business to perform well in the near-to-medium term. BPCL’s refining segment did well in Q3 reporting a gross refining margin (GRM) of $9.7 per barrel higher than evaluated.

While those augurs well, an important factor for BPCL investors to watch is the progress and timeline on the potential divestment of the government’s 52.9% upright in the company. As things stand, BPCL’s privatization is not expected this fiscal year and will be pushed forward to the financial year 2023.

Restricted progress has been made in divesting BPCL’s demanding portfolio or in selling down its holdings in Petronet LNG and Indraprastha Gas. Government is also disincentivizing petrol and diesel with excise duties at historical highs while subsidizing city gas distribution players

Further crude oil prices are increasing with Brent crude lead on at $90 per barrel. With upcoming elections in Punjab and Uttar Pradesh, analysts reckon OMCs will avoid increasing retail prices of petrol and diesel. This could harmfully affect their marketing margins.

To be sure, BPCL shares have delayed those of peers, Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOC) in the past year. As such the large special dividend paid in September does remunerate for BPCL underperformance to that extent the silver lining is that BPCL

Stock’s valuations are relatively undemanding. Needless to say, investors would follow privatization news flow closely here on and the potential valuations that the deal would summon in the end

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