Sector 2: Oil & Gas Company 1: BPCL

General Overview
Bharat Petroleum is a Maharatna Public Sector Undertaking. It started as an Oil and Gas Company in
India to a Fortune 500 oil refining, exploration and marketing conglomerate. The GOI holds
approximately 53% stake in this PSU, which has recently been offered for divestment. Though Oil& Gas
segment was harshly affected due to lockdown and pandemic, the organization is fundamentally strong
with long term growth prospects. Vedanta is planning to raise $8 billion for BPCL acquisition as per
reports. Vedanta had earlier bought Hindustan Zinc which gives them rich expertise in operating a PSU.
The company has Increasing profits every quarter for the past 2 quarters. Company can generate Net Cash
- Improving Net Cash Flow for last 2 years. The stock is medium financial performance with average price
momentum and valuation, however, has good long-term prospects being a fundamentally strong company.

Shareholding pattern of the company

Source: Money Control

Source: Money Control

Source: Money Control

 • Promoters holding remains unchanged at 52.98% in Dec 2020 qtr.
• Mutual Funds have decreased holdings from 13.76% to 13.26% in Dec 2020 qtr.
• FII/FPI have decreased holdings from 11.98% to 11.56% in Dec 2020 qtr.
• Number of FII/FPI investors decreased from 1024 to 997 in Dec 2020 qtr.
• Institutional Investors have decreased holdings from 33.4% to 32.48% in Dec 2020 qtr.
• The promoters i.e GOI has submitted EOI for their stake sale. The process has been going on since last
year. However, high market valuation close to 10$billion makes it less attractive for investors.

Management of the company

• K. Padmakar (HR) & Chairman & Managing Director (In Charge)
• Arun Kumar Singh, Director (Marketing) And Director (Refineries)
• N. Vijayagopal, Director (Finance)
• Rajesh Aggarwal, Government Director
• Dr. K. Ellangovan, Government Director
• Shri Harshad P Shah, Independent Director
The Management of PSUs are selected after due diligence as per government norms by
government of India. Hence, PSUs are under the able leaders who have rich experience in the
industry.

SWOT of Company
Strengths
• BPCL is one of India's largest state-owned oil and gas company.
• A strong brand presence along diversified portfolio
• Strong proficiency in refining and retailing of petroleum.
• Being a PSU, strong backing in terms of finance and operations
• Good marketing and branding of the company through promotions.
• More ventures in upstream and downstream activities to give a boost to the business of BPCL.
• Higher market valuation despite being second largest retailer. Higher brand recall
• Strong network of dealers and distributors.
• Robust supply chain
• Long term strategy for Biodiesel, Bio-fuel plantation, setting up of bio-diesel facilities, Solar
farms, wind farms etc.
• Company with Zero Promoter Pledge

Weakness
• Being a PSU, there are operational delays due bureaucratic inefficiencies.
• Intense competition, leading to limited market share growth for BPCL.
 • Operating in a hydrocarbon-based fuel, which is a known culprit for global warming.
• Operational limited to India only.
• High employee cost.
• Ineffective use of capital to generate profits - RoCE declining in the last 2 years.
• Ineffective use of shareholder funds - ROE declining in the last 2 years.
• Ineffective use of assets to generate profits - ROA declining in the last 2 years.
• Low cash generated from core business - Declining Cash Flow from Operations for last 2 years
Degrowth in Revenue and Profit Annual net profit declining for previous 2 years.
• Declining profitability: Falling ROCE.
• High working capital

Opportunities

• Increasing natural gas market for industries is a huge opportunity.

• More oil well discoveries across the world
• Expand export market and tie-up with international companies can increase business for BPCL.
• Growing Indian economy and fuel demand.
• Expand their petrochemical business overseas or form joint ventures with foreign companies.
• Act as charging stations for EVs

Threat
• Government regulations and restrictions can affect business.
• High competition means a reduction in BPCL's market share.
• Dependence on global crude prices
• Intensive competition from oil PSUs.
• Global shifted towards electric and renewable sources of energy.

Competitive Analysis
NAME P/E P/B ROE ROC ROA REV OP NPM BASIC CURR TOTAL TOTAL
(X) (X) % E% % CAG M EPS ENT DEBT/ DEBT/
R RATIO EQUITY CFO
[3YR] (X) (X)
BPCL 19.87 2.18 8.36 6.83 2.02 12.03 2.17 0.79 15.53 0.72 1.69 7.73
IOCL 26.84 0.91 -0.93 5.55 -0.27 10.57 1.92 -0.66 -0.97 0.68 1.32 14.56
HPCL 5.34 1.07 8.51 6.63 2.25 12.62 1.47 1.15 17.32 0.66 1.27 7.20

Comparing all the oil PSUs, BPCL is overvalued compared to HPCL, which is almost of similar size. The
P/B is highest among all oil PSUs, further strengthening our argument. The company has relatively utilized
capital and asset to generate revenue and profit in comparison to IOCL. The D/E ratio and current ratio is
also the highest in the PSUs, signaling a positively debt-ridden organization.
Conclusion and way forward for the company
With the GOI pronouncement to sell its stake in BPCL to a strategic buyer, the company is at the brink
of a significant revolution, which is anticipated to unlock enormous value by way of enhanced
competence, access to advanced technologies, newer global markets, a diversified product portfolio and
improved accessibility of resources and capital. The market capitalization of the company scaled peaks
during the year and even outstripped the market capitalization of the largest PSU OMC on a couple of
events, bearing testimony to investor confidence in BPCL’s innate value. The importance of
digitalization cannot be overemphasized in the current times, as the crisis shapes the operating and
interacting norms across the world, impacting the demand for aviation and transportation fuels. The case
for digital proliferation in organizations has further strengthened, particularly in the Oil and Gas sector,
which has seen constrained digital adoption. The new-age digital technologies have the potential to
meaningfully drive cost optimization, enable effective asset creation, operation, maintenance, and
management, enhance certainty in upstream assets, improve yields, streamline processes, deliver
integrated and intelligent information, redefine human resource interface, reshape customer experience
and effectively manage recording and compliances.

References
• Money Control
• https://www.mbaskool.com/brandguide/energy/351-bharat-petroleum.html
• Economic Times
• BPCL Annual Report