BPCL: Recommendation Review

We had recommended BPCL in Dalal Street Investment Journal Vol. 26, Issue No. 19 (dated 29th Aug, 2011), when the scrip was trading at Rs 686. Our recommendation was backed by three major factors: under-recoveries which were
to be capped or could decline, resulting in a better performance; commissioning of the new refinery at Bina, which will make it self sufficient and also result in higher GRMs; and last but not the least, its E&P portfolio, which could provide a long-term trigger. At that point, we had stated that the under-recoveries have been priced in and that they were already declining thanks to the government having gone ahead with a price de-control for petrol. Further, we had also mentioned that some bold steps were expected in terms of diesel price de-regulation. Expectations that the government is again planning to take steps for diesel price de-regulation has seen the stock witness an up-move.

On 6th July 2012, through our ‘Book Profit’ SMS facility, we had asked investors to book profits in the scrip at Rs 767. The company announced a bonus 1:1 after that, and now, the scrip is trading at Rs 372. We are of the opinion that the under-recoveries have declined with the fall in crude prices and a few price hikes in petrol. This is an added advantage. For FY12, BPCL has posted good results despite a difficult scenario. Its GRM stood at USD 3.16 per barrel.

In uncertain markets, the stock has provided a good return of 12 per cent. Those who have not yet booked profits in the counter can do so now.