Refining stays weak, nonetheless worries ease on promoting; we keep optimistic on divestment prospects in FY22F. In comparison with uncommon/delayed retail petrol/diesel value changes in 2020, oil promoting companies (OMCs) have taken every day value will improve recently. Regardless of peak prices, inflation issues, danger of strikes by transporters, and unfavourable press, value hikes have been sustained. Up to now in 2021, petrol/diesel prices are up ~₹7.2/7.5/L (9-10%, ~$16/bbl) and LPG prices are up ₹100/cylinder (+14%).
On our estimates, retail prices are literally factoring in worldwide product value of $64-65/bbl. We see draw again menace to grease prices (we assume $55/bbl for FY22F), and product margins keep weak. Upcoming state elections are a menace. However we discover there could also be scope of excise accountability cuts. In our view, menace/ reward is far more useful now for promoting. Nonetheless, refineries are nonetheless going by way of one in every of in all probability essentially the most excessive down-cycles, with restoration delayed on account of a second wave of the pandemic, and near-term outlook is weak.
Divestment, delays and lukewarm curiosity, nonetheless appears to be extra prone to full in FY22F; BPCL’s divestment, initially deliberate for FY20, has been delayed. Investor curiosity has moreover been lukewarm. We think about the current environment is simply not the simplest one to fetch good valuations. Nonetheless, the federal authorities appears to be keen, and we rely on divestment in FY22F.
Valuations, further optimistic on promoting; improve TP to ₹550 (from 505); buy pushed by inventory good factors, we improve FY21F consolidated EBITDA by 16%, and FY22F/FY23F by 4% / 10%, as bigger promoting margins offset our decrease in refining margins. Greater EBITDA, totally different earnings and reduce curiosity value, translate to FY21F / 22F /23F consolidated earnings will improve by 31%/19%/24%. We roll forward valuations to Sep-22F (from Mar-22F). We proceed to price refining at 5x EV/EBITDA. With a further optimistic outlook, we now value promoting at 7x EV/EBITDA (6x earlier). We alter Bina refinery stake to 100% from FY22F, and now assume BPCL would get ₹50bn (₹25/share) for Numaligarh refinery stake sale (earlier ₹75bn). Our revised SoTP value is ₹435/sh (earlier ₹290). Our privatisation risk value at an assumed deal value of ₹600/share (unchanged) for open provide declines to ₹115/sh (earlier ₹215/sh). Our revised TP is ₹550 (19% upside). We protect our Purchase rating. The inventory trades at 10.8x FY22F EV/EBITDA and 1.9x FY22F P/B. Amongst OMCs our pecking order is IOC > BPCL > HPCL.