Reiterate 'buy' on BPCL - TP maintained at Rs.431 - Geojit BNP Paribas Financial Services

- Current price of the stock is in the range of Rs.387.

- BPCL's 3QFY13 results beat expectation on account of strong GRM (Gross Refining Margins). Inventory gains and pass through of Octroi at the Mumbai refinery resulted in a gain of USD2/barrel and GRM of USD4.8/barrel makes the strong headline earnings less exciting.

- In addition, the management mentioned that losses at Bina and NRL totaled at Rs.1000 crore for 9M in FY13, which is also a slight concern.

- It seems that BPCL's E&P business potential has been sidelined somewhat by recent reform proposals regarding diesel price hikes. Drilling plans at both Mozambique and Brazil are on track with possible reserve certification to be announced during FY14.

- A diesel price hike would also harden the GoI's resolve to reduce under-recoveries as crude spikes.

- The stock is rated to buy with a target price of Rs.431. The recent correction in stock price appears to be the result of some profit booking coupled with the spike in crude prices and the rupee weakness. The correction provides an opportunity to build positions.

- At the CP, the stock does not appear to factor in diesel price hike and E&P seems to be valued at a discount.

- Risks to the target price include delays in monthly diesel price hikes and continued strength in crude oil prices.

Source : Equity Bulls

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