Buy BPCL – TP Rs.629 - Geojit BNP Paribas Financial Services Limited

- BPCL has been upgraded to 'buy' from 'hold' with a target price of Rs.629 over one year.
- The upgrade is due to the increase in E&P (exploration and production) valuation considering company's 10% stake in Mozambique offshore gas block.
- In addition, company's higher under- recovery of Rs.1368 billion (due to higher crude oil prices and weakness of the rupee) has also been considered, to which the company is expected to get government support.

- Recently, Cove Energy (8% stake holder in Mozambique Block) has been in the news as an acquisition target with bids expected to be greater than USD 1.2 billion. This is an indication of the value of BPCL's 10% stake in Mozambique.

- Oil marketing companies (OMCs) are expected to get government support to offset part of their under- recoveries and this would ease the burden of OMCs.

- The stock has been on a rally on the back of successful appraisal of Mozambique stake. The valuation is still attractive and has been upgraded to buy.

- Target price has been revised to Rs.629 from Rs.695 as there has been a more conservative view on subsidies.

Source : Equity Bulls

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