Large Cap stock gets a buy call with an upside of 22% after company’s net profit jumps 168%

Shares of Bharat Petroleum Corporation Ltd (BPCL) were in the green after the company reported robust results for the quarter and year ended on March 31, 2023. Its shares were trading at ₹ 366.50 apiece on Wednesday’s early trades. 

Surprising the street, BPCL posted better-than-expected results for the March quarter. On a consolidated basis, it registered a 168.46 percent growth in its net profit for the January to March quarter (Q4FY23) to ₹ 6,870.47 crores, against ₹ 2,559.17 crores reported in the corresponding quarter last year (Q4FY22). Its revenue came in at ₹ 133,902.66 crores in Q4FY23, up 7.96 percent as compared to ₹ 124,026.81 crores in Q4FY22. 

For the entire year (FY23), the company reported a net profit of ₹ 2,131.05 crores, down 81.76 percent as compared to ₹ 11,681.50 crores reported in FY22. It registered a 23.04 percent increase in its revenue to ₹ 535,045.51 crores in FY23, as compared to ₹ 434,838.16 crores in FY22. 

Brokerage firm Motilal Oswal said that BPCL’s gross refining margin (GRM) of $20.6 a barrel was above its estimate of $17 a barrel, however, the implied marketing margin stood at ₹ 2.9 per litre, which was lower than its estimate of ₹ 4.5 per litre. 

Nuvama Institutional Equities said that the company’s operating cash flow(pre-working capital) declined 36 percent year-on-year (YoY) to ₹ 13,400 crore on subdued operations. It added that BPCL’s GRMs shall remain subdued in the near term on anticipated recession fears, however, it has given a target of ₹ 442.00 on the stock, reiterating its thesis of Golden refining era and strong growth prospects. This indicates an upside of 20.60 percent as compared to its current share price of ₹ 366.50. 

Jefferies has a target of ₹ 445 on the stock. This translates to an upside of 21.42 percent as compared to its current share price. 

BPCL is a public sector undertaking that is engaged in the business of refining crude oil and the marketing of petroleum products. In addition, its business includes fuel services such as SmartFleet, Speed 97; Bharatgas which provides end-to-end solutions and services to domestic and commercial clients; MAK Lubricants which provides automobile lubricants; and Aviation services including the production of Jet Fuel at refineries. 

With a market capitalization of ₹ 79,274 crores, BPCL is a large-cap stock. It has a low return on equity of 4.04 percent but a high dividend yield of 4.36 percent. Its shares were trading at a price-to-earnings ratio of 36.66 which is significantly higher than the industry P/E of 5.75, indicating that the stock might be overvalued as compared to its peers. 

Written by Simran Bafna 

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