BPCL ratings: Reiterate ‘Sell’ amid adverse risk-reward balance

The recent outperformance of BPCL against other OMCs is pricing in upside from a potential open offer in lieu of control premium that maybe paid by a strategic buyer in a scenario of privatisation. Our reverse valuation also suggests that the market has already ascribed 10X EV/Ebitda to BPCL’s marketing business, at a premium to global M&A in the fuel retailing business, while ignoring differences with developed markets. Reiterate ‘Sell’ amid adverse risk-reward balance.

The recent sharp rally in BPCL stock and its outperformance over other OMCs is effectively pricing in upside to minority shareholders from a potential open offer, in our view, in lieu of a control premium that may be paid by a strategic buyer to acquire the government’s majority stake in BPCL.