Nomura cut the BPCL target price to Rs 385 from Rs 395 due to high crude oil prices. The firm warned that these costs could hurt near-term earnings and lead to a weaker Q3FY27. BPCL reported standalone EBITDA of Rs 90 billion in Q2FY27, missing the brokerage's estimate of Rs 112 billion.
Nomura has retained its Buy rating on Bharat Petroleum Corporation but lowered its target price to Rs 385 from Rs 395, warning that elevated crude oil prices could weigh on near-term earnings and lead to a weaker Q3FY27. BPCL reported standalone EBITDA of Rs 90 billion in Q2FY27, compared with Nomura's estimate of Rs 112 billion and consensus of Rs 64 billion. The shortfall against the brokerage's forecast was largely due to a refining gross refining margin of $32.5 per barrel, 20% below its estimate of $40.8 per barrel. Management cited higher freight costs and a lower discount on Russian crude for the sequential decline in refining margins, despite strong crack spreads.
Fuel-retailing losses narrowed to Rs 11.7 per litre in Q2 from Rs 27.2 per litre in Q1. The improvement reflected lower average crude prices and the full-quarter impact of petrol and diesel price hikes. However, the cumulative LPG under-recovery buffer rose to Rs 173.3 billion from Rs 158 billion in Q1 as controlled LPG pricing continued to generate under-recoveries. With Brent crude above $110 per barrel, Nomura estimates oil marketing companies are facing losses of around Rs 26 per litre at the current run rate, potentially resulting in weak Q3 earnings. The brokerage expects investors to moderate expectations for fuel marketing margins, forecasting margins of Rs 3 per litre in FY28-29.
BPCL is targeting around 37% expansion in refining capacity by 2030 from 35.3 million tonnes per annum currently. The Bina refinery is undergoing a 3.2-million-tonne expansion, while the Mumbai refinery is set for an upgrade to process more high-sulphur crude, with commissioning scheduled for July 2028. A proposed 10-million-tonne integrated greenfield refinery complex in Andhra Pradesh is in the final stages of feasibility study. Management indicated debt-to-equity could peak at around 1.1 times before returning to 0.4-0.5 times after the Andhra project is commissioned. Nomura expects FY27 earnings to be almost wiped out, factoring in retailing losses and LPG under-recoveries of Rs 300 per cylinder.
It values BPCL using sum-of-the-parts valuation and considers its FY28 multiples of 5.6 times EV/EBITDA and 1.1 times price-to-book attractive.