BPCL up 4.5%; UBS upgrades to buy, ups target to Rs 945

Shares of  Bharat Petroleum Corporation  (BPCL) gained 4.5 percent to hit a life high of Rs 831.60 on Wednesday. Brokerage UBS has upgraded the stock to buy with increased target price of Rs 945. "Our new Rs 945 price target recognises higher marketing business valuations of 7.5x EV/EBITDA (from 6x earlier) on a better marketing business outlook and factors in lower debt as working capital eases. BPCL trades at a premium to peers and at near-peak valuations on P/BV and EV/EBITDA," said the brokerage in its note. While explaining why the BPCL is best among peers, UBS said the state-run oil marketing company has favourable sales mix, in which deregulated fuels contribute 68 percent of volumes; marketing business EBITDA contribution is the highest at 53 percent; and non-fuel business, with revenues of Rs 430 crore, is ahead of peers’. Other positives about the company are its refining margins & benefits from capacity expansion; efficient inventory/working capital cycles; and smaller debt and a limited capex outlook. The brokerage sees a risk that the government might make all marketing SOEs absorb a 3-5 percent share of fuel losses over FY15-17E as their profitability improves. However, it believes BPCL's earnings are least vulnerable as the 16 percent contribution of LPG and kerosene to its sales mix is lower than peers’ 18-19 percent. BPCL's E&P assets (in Mozambique and Brazil) may face risk from delays, but UBS is not concerned. At 12:29 hours IST, the scrip of Bharat Petroleum Corporation was quoting at Rs 825.90, up Rs 30, or 3.77 percent on the BSE.