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Sector 2: Oil & Gas Company 1: BPCL General Overview
Sector 2: Oil & Gas Company 1: BPCL General Overview
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.
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
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.
References
Money Control
https://www.mbaskool.com/brandguide/energy/351-bharat-petroleum.html
Economic Times
BPCL Annual Report