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BPCL stock falls for third straight day after Moody's, Centrum Broking turn cautious post privatisation announcement

BusinessToday.In     October 9, 2019

Bharat Petroleum Corporation (BPCL) share price fell for the third straight day after international credit rating agency Moody's warned of downgrading the state-run company to Ba1 if the government goes ahead with privatisation by selling its stake to a private entity. Additionally, Centrum Broking has also lowered its rating to reduce on the stock citing cautious stance on BPCL following the recent run-up in the stock.

BPCL share price fell to an intra day low of Rs 482 compared to previous close of Rs 490.95 on BSE. 

On September 30, a group of secretaries panel on disinvestment approved the sale of government's entire shareholding in four public sector companies - Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), THDC India and NEEPCO. Subsequently, the stock rose to fresh 52 week high of Rs 511.5 on October 1. 

However, the stock could not sustain the rise after Moody's warned of downgrading the state run company on October 4 if the government went ahead with privatisation.

The warning triggered the slide in the stock of oil marketing company. The rally continued till October 4 when the stock made another yearly high of Rs 547.50 on BSE.

Since then, the OMC stock has been losing ground.

Moody's in a note said, "Currently, being a state-owned enterprise, BPCL has a BBB- rating which is on par with the sovereign rating. Ba1 rating will be equal to its current baseline credit assessment. BPCL's Baa2 ratings incorporate our expectation of the high likelihood of extraordinary support from the government, which results in two notches of uplift in the ratings," Moody's said.

The agency added that BPCL's credit ratings will depend on whether the buyer is another state-owned company or a non-state-owned company if the stake sale goes ahead.

Centrum Broking too adopted a bearish approach toward the stock.

"While its base case target price of Rs 450 per share implies a 8.2 percent downside from (Current Market Price) CMP, even factoring in more optimistic assumptions for gross refining margin-GRMs ($6.4 a barrel versus $5.9 per barrel in base case), marketing margins (Rs 4,800 per tonne versus Rs 4,700 per tonne) and higher multiples (7 times FY21 EBITDA versus 6.5x and 9x for marketing versus 8x) as well as 10 percent higher E&P value gets us to a bull case value of Rs 530 per share, only 8 percent upside from CMP, implying the exuberance around divestment is overdone," Centrum Broking said.

Centrum Broking said it maintained cautious stance on BPCL following the recent run-up in the stock.

"Despite the structural implications of around 13 percent of Indian refining and around 25 percent of Indian marketing capacity potentially being owned by a private player, we submit that the stock already prices in close to a bull case scenario for BPCL, leaving little on the table for investors," it said.

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