On Monday, UBS analyst raised the price target on Bharat Petroleum Corporation Limited (BPCL:IN) shares to INR400 from INR350, while keeping a Buy rating on the stock. The revision reflects a positive outlook on the company's earnings momentum, driven by a combination of favorable crude prices and a strategic shift in profits from refining to marketing.
The analyst noted that consensus earnings estimates for BPCL have increased by approximately 30% over the past six months due to integrated margin strength. The expectation is that this earnings momentum will persist as crude prices stabilize. Consequently, UBS has adjusted its FY26-27E EBITDA estimates upwards by 1-4%, which are 23-34% above consensus.
The rationale behind the upgraded price target includes an increase in marketing margin estimates by 2-6% and a decrease in gross refining margin (GRM) estimates by 3-6%. The analyst underscored BPCL's trading position at a roughly 25% discount to its long-term average price-to-earnings (PE) and price-to-book value (P/BV) ratios, highlighting an attractive risk-reward scenario for investors.
UBS has also revised its target PE ratio for Bharat Petroleum from 8.0x to 9.0x. This adjustment is based on the company's efficient assets, which are expected to enable earnings outperformance compared to peers, and a strong balance sheet with stable net debt projected for FY24-26E.
The analyst emphasized that BPCL's elevated integrated margins could lead to earnings outperformance relative to peers and investor expectations, which supports the decision to maintain a Buy rating and raise the price target.
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