Shares of Bharat Petroleum Corporation Limited (BPCL) closed 2.07 percent lower at Rs 352.9 after Jefferies, a foreign brokerage firm, downgraded the stock to “underperform” on September 20. The brokerage firm also set a target price of Rs 310 per share.
Jefferies has expressed concerns about BPCL’s financial performance in the second half of FY24, anticipating Earnings Before Interest Tax Depreciation and Amortization (EBITDA) losses. These losses are attributed to increased marketing losses in diesel. The brokerage firm has made a significant 22 percent reduction in BPCL’s EBITDA margin projection for FY24.
Currently, Oil Marketing Companies (OMCs) are grappling with substantial losses, approximately Rs 9 per litre on diesel. This situation could potentially result in a combined loss of about Rs 450 billion in the second half of FY24, assuming the current Brent and diesel prices hold. Jefferies suggests that given important elections scheduled for December, there is a possibility of reducing retail diesel or gasoline prices. However, the brokerage firm believes that Indian Oil Corporation Limited will be the least affected due to its favorable refining-to-marketing ratio compared to its peers.
Despite these challenges, BPCL shares have shown resilience, gaining 5.3 percent since the beginning of the year and 9.21 percent over the past year.
In terms of financial performance, BPCL’s sales for the April-to-June quarter were down 6.6 percent year-on-year (YoY) at Rs 112,985 crore. Notably, the company managed to turn a profit of Rs 10,644 crore in Q1FY24, a significant improvement compared to a loss of Rs 6,148 crore in the same period the previous year.
Investors are closely watching how BPCL navigates the complex dynamics of the oil market and manages potential challenges in the coming months.