Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
BPCL: Price of consolidation? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 20, 2001

    BPCL: Price of consolidation?

    The downstream petroleum sector in India is expected to undergo forced consolidation as the industry is thrown open to competition. As per the original schedule the sector is to be completely deregulated from April 2002 with the dismantling of the administered pricing mechanism (APM).

    Currently, the Government controls marketing of transportation fuels but with deregulation, post 2002, private players will be permitted to enter this segment. Stand alone refineries would stand to lose as the bargaining power could most likely shift to companies with marketing infrastructure.

    Consequently, on the basis of the Sengupta committee recommendation the Government has stated that Kochi Refineries Ltd (KRL) and Numaligarh Refineries Ltd (NRL) are be merged with Bharat Petroleum (BPCL) while Indian Oil (IOC) is to acquire Bongaigaon Refineries and Petrochemicals Ltd. (BRPL) and Chennai Petroleum Corporation Ltd. (CPCL).

    The deals are slated to be completed by the beginning of FY02 but meeting this schedule seems unlikely. As per latest reports BPCL and IOC are interested in acquiring these companies at the current market price while the Government is keen to sell at book value. This is evident in the case of KRL whose book value is almost twice that of its market price.

            Combined Entity (CMP) Book value
        BPCL KRL# Share deal Cash deal Share deal
    CMP* Rs 197 61 215.5 246.1 157.3
    No.of shares no. m 300.0 137.8 342.5 300.0 413.80
    Market Cap Rs bn 59.0 8.4 73.8 73.8 65.1
    Sales*** Rs bn 444.6 72.3 516.9 516.9 516.9
    EBITDA*** Rs bn 15.1 3.4 18.5 18.5 17.3
    PAT*** Rs m 8,801.0 2,216.6 11,017.6 11,017.6 9,716.0
    EPS Rs 29.3 16.1 32.2 36.7 23.5
    P/E x 6.7 3.8 6.7 6.7 6.7
    Mkt cap / sales x 0.13 0.12 0.14 0.14 0.13
    Mkt cap / EBITDA x 3.9 2.5 4.0 4.0 3.8
    BVPS** Rs 116.0 95.8 211.8 211.8 211.80
    CMP/BVPS x 1.7 0.6 1.0 1.2 0.7
    Refining capacity MMTPA 7.0 7.5 14.5 14.5 14.5
    Mkt Cap/ tonne Rs 8,434.3 1,116.2 5,090.9 5,090.9 4,489.5
    * Current market price, ** Book value per share, *** Annualised FY01E, # 3 - year average
    At CMP 1BPCL = 3.2 KRL, At BV 1BPCL = 1.2 KRL

    Should the acquisition be made by a share offer at CMP the shareholders of BPCL stand to gain marginally (9% upside). This is assuming BPCL is able to trade at 6.7x earnings (current valuations). KRL shareholders will stand to gain more with a potential upside of 17%.

    However, if it is an all cash deal shareholders of BPCL stand to gain significantly with a potential upside of 24%. KRL shareholders will be paid the CMP of Rs 61.

    The Government though is keen to sell KRL at book value as the divestment will fetch it a higher value of Rs 96 as compared to Rs 61. The cash deal would have a similar impact for BPCL shareholders as the earlier scenario. However, the price tag would increase by Rs 35 / share. A share deal at book value would destroy value for both the shareholders. Further, in case of a cash deal it is not known how BPCL would fund the acquisition. The raising of debt would negatively impact earnings.

    We could see couple of negotiating rounds between the two parties. Most likely there could be a compromise on the price between the CMP and book value.



    Equitymaster requests your view! Post a comment on "BPCL: Price of consolidation?". Click here!


    More Views on News

    BPCL: Inventory gains boost profits (Quarterly Results Update - Detailed)

    Sep 10, 2016

    BPCL has reported 3.1% decline in the topline and 11% growth in the bottomline for the year ended June 2016.

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    BPCL: Higher other income boosts profits (Quarterly Results Update - Detailed)

    Jan 20, 2016

    BPCL has reported 25.1 % YoY decline in the topline while bottomline for the quarter grew 119% YoY.

    BPCL: A strong quarter (Quarterly Results Update - Detailed)

    Sep 10, 2015

    BPCL has reported 22.2% YoY decline in the topline while bottomline grew by 95.4% YoY in the quarter ended June 2015.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)



    Compare Company With Charts