SEPTEMBER 2021 

CHRIST UNIVERSIT Y

CIA -3
BUSINESS VALUATION

PREPARED BY
JIRIN GEORGE :- 20221014
JOBIN JOHN :- 20221015
KASHISH JAIN :- 20221016
SANIDHYA SHARMA :- 20221024
TABLE OF CONTENTS
1. About the Company
2. Performance Analysis
3. Economic Analysis
4. Trends in Oil and Gas Sector
5. Current Trend in Industry
6. Business Model
7. Valuation Drivers
8. Profit and Loss Statement
9. Balance Sheet
10. Cash Flow Statement
10. Conclusion
11. Annexures
 4

BHARAT PETROLEUM CORPORATION

LTD.
Bharat Petroleum Corporation Limited (BPCL) is an Indian public sector company headquartered in
Mumbai, Maharashtra. Company operates two large refineries of the country located in Kochi and
Mumbai. It is India's 2nd largest downstream oil company and is ranked 275th on the Fortunes List of
the world's biggest corporations as of 2019. It ranked 672 in the Forbes list in 2018.

The company was initially known as Rangoon Oil and Exploration company set up to explore the new
discoveries off Assam and Burma during the Colonialism in India. In 1889, the Burmah Oil Company
was an important player in the South Asian market during vast industrial development.

IN SHORT

Bharat Petroleum Corporation Limited is an Indian government-owned oil and gas

corporation. It is under the ownership of Ministry of Petroleum and Natural Gas,

Government of India, headquartered in Mumbai, Maharashtra. It operates two large

refineries in Kochi and Mumbai.

Stock price: BPCL (NSE) ₹438.95 -51.00 (-10.41%)

Customer service: 1800 22 4344

Headquarters: Mumbai

Founded: 1952

Revenue: 8.74 lakh crores INR (US$120 billion, 2021)

Number of employees: 81,233 (Q3 2020)

Subsidiaries: BPCL Kochi Refinery, MORE

Parent organizations: Government of India, Ministry of Petroleum and Natural Gas

 5

Performance Analysis
 6

Industry Oil & Gas

Listing BSE:500547
NSE:BPCL
NSE NIFTY 50
Current Share
price ₹ 374.00

Value per Share

(Projected
value) ₹ 241.15
 320
340
380
400
420
460

360
440
26-08-2020
27-08-2020
28-08-2020
29-08-2020 EV to EBITDA
Profit Margin
Current Ratio

30-08-2020
Debt Equity Ratio

31-08-2020
01-09-2020
Interest Coverage Ratio

02-09-2020
03-09-2020
04-09-2020
05-09-2020
06-09-2020

OPEN
07-09-2020
08-09-2020

HIGH
09-09-2020
10-09-2020
2.77
0.04
0.70
1.26

12.37

LOW
11-09-2020
12-09-2020
13-09-2020
14-09-2020

CLOSE
15-09-2020
Performance of the Share

16-09-2020
17-09-2020
18-09-2020
19-09-2020
20-09-2020
21-09-2020
22-09-2020
23-09-2020
24-09-2020
25-09-2020
 8

ECONOMIC ANALYSIS
The world economy raised at a slower pace of sub 3% levels in the year 2019, lesser than that viewed in
the year 2018, due to opposing impacts of trade protectionism, geopolitical tensions, financial stress in
key developing market economies, heightened social discontent in numerous countries and weather-
related disasters. In end 2019, just as the global economy was looking forward to steadying supported
by easing of trade barriers, abating of Brexit concerns, acceptance of accommodative monetary policies
by Central Banks and bottoming out of industrial activity and global trade, the worst pandemic in decades
of current history hit hard.
The COVID-19, which originated in China in December 2019, engulfed within its fold nearly the entire
creation within a span of few weeks. With no known remedies available to battle the fast spreading
deadly pandemic, states across the world responded by enforcing lockdowns, mandating social
distancing, instituting defensive protocols and augmenting healthcare systems on a war footing - actions
aimed at slowing down the spread of the virus and covering the damage. The last time the world
confronted a pandemic crisis of the measure of COVID-19 was in 1918, when the unconquerable H1N1
flu spread across the world claiming millions of human lives.
The disturbance in economic activity, global trade and travel has activated a deep economic crisis
crossways the world. In spite of genuine efforts to counter adverse impacts of the crisis over a plethora
of fiscal and financial policy incentive and financial support, the global economic growth is predictable
to slip deep into the adverse zone by the end of year 2020, much worse than that witnessed during the
2008–09 financial crisis. In the event that the pandemic retreats in the second half of 2020 and economic
activity regularizes with policy support and gradual calming of repression measures, the world economy
is expected to produce at a higher pace in 2021. However, the global growth forecast is overwhelmed
with uncertainty, as it pivots on factors extremely difficult to forecast at this stage, like the trail of the
pandemic, the effectiveness of containment actions and the pace and extent of relaxing, response to
policy stimulus, financial market movements, social changes affecting spending and asset, global trade
and travel, business and consumer sureness and volatility in product prices. The pandemic consumes
posed plain risks to the global economy. It is measured as the nastiest crisis since the Great Depression
throughout the 1930s.
The crisis has a contagion nature and a domino result with all-out risk to the lower layers of economies,
businesses and population. The disruptions in global and national supply and worth chains, interruption
in international trade and travel, inferior productivity levels, closure of effort places, suspension of
activity and delay of investment may lead to labor force layoffs, reduced income heights and reduced
 9

expenditure, which will further exert descendant pressure on demand, leading to more business closures
and job losses. The stress in the financial markets, liquidity crunch and rising debts can amplify the
effects additional with limited room available with policymakers. Disadvantages notwithstanding,
targeted timely and huge fiscal, monetary and financial market improvements and measures may
facilitate recommencement of economic activity towards normal levels and counteract the effect of the
shock, particularly in the sectors and sections nastiest pretentious by the pandemic. Improved
international cooperation,
info sharing, synchronized medical research and interferences and provision of financial assistance to
weaker economies would be compulsory for a broad-based retrieval in the global economy. However,
checking the spread of the virus and discovery an effective cure for the ailment remain the critical
fundamentals. While the Indian economy grew at a leisurelier pace of about 4.2% in the year 2019-20
due to factors like deceleration consumption, declining investments, muted export growth and thickening
financial stress, the outlook for 2020-21 looked encouraging before the onset of COVID-19. The refining
rural demand and return of hopefulness in manufacturing and speculation, supported by fiscal and
monetary policy incentive by the Government and the RBI, particularly the tax reforms, infusion of
liquidity, discount in interest rates and allowing monetary transmission, had shaped an environment
favorable for higher growth.
However, the COVID-19 pandemic radically altered the scenario. India’s summary response to the state
is appreciated world over, though, the economic cost of lockdowns and repression measures is huge and
has to be tolerated by the economy. While the incentive announced by the RBI and Government, coupled
with a kind worldwide crude oil price scenario, is expected to provide some cushion to the dwindling
growth, however, due to the pandemic state, it may be severely wedged. The Consumer Price Index
(CPI) inflation in the republic averaged at 4.76% in the year 2019-20 as in contradiction of 3.43% in the
preceding year.
The headline rise rose reliably month over month and sickly-looking in the month of January 2020 before
declining and settling at 5.84% in March 2020. The variations in the food and vegetable prices clear
majority of the movement in CPI rise during the year 2019-20. Looking ahead, inflation may unstiffen
in the pending months, as food prices ease additional with expected record production and influence of
lower prices of crude oil percolate in the economy. However, the trajectory of rise will be strong-minded
by the evolution of the COVID-19 situation and the pace of economic retrieval.
The outburst of pandemic bore heavily on the foreign conversation rates across the developing market
economies, with the Indian Rupee (INR) moving a staggering low of 76.15 against the USD dollar (USD)
in the month of March 2020 and denigrating by around 9.0% by the near of year 2019-20. The INR came
 10

under strengthened depreciation weights towards end February 2020, as global trade disturbed and risk
dislike gained prominence. Previous to this, the INR vs USD exchange rate continued range bound in
the territory of INR 68.3 to INR 72.2 per USD, impacted by growths around US-China trade tensions,
drive in crude oil values and policy measures proclaimed by the Government for attracting capital
inflows.
The rupee be around at INR 70.89 per USD as against INR 69.91 per USD in the preceding year,
registration an average depreciation of 1.4% year on year. The COVID-19 state continued to put pressure
on the INR, which additional depreciated to all-time troughs in early 2020-21. With absolute doubt
around unfolding of the COVID-19 situation, economic retrieval is inundated with important downside
risks stopping from the relocation of labor, fractured and unaligned supply chains, suboptimal operations,
demand and supply shocks, liquidity disaster especially in the chaotic and limited businesses, and
distorted fiscal position. On the side of optimism, higher quantity of national consumption in the
economy, demographic dividend, potential to emerge as an alternative industrial hub and targeted timely
fiscal and financial policy measures by the Government can support the shock and place the economy
back on the development trajectory faster than many other main economies in the world.
 11

Business Verticals of BPCL

 Bharat Petroleum Corporation Ltd. (BPCL) is mainly engaged in the business of refining of crude oil
and marketing of petroleum products. BPCL is having a diversified product offering and presence
across value chain.
 The company’s business is divided in seven key Strategic Business Units like Refinery, Retail, LPG,
Industrial/Commercial, Aviation, Lubricants and Gas.

Business Verticals of BPCL

 12

Key Financials of BPCL (As on 6th October 2019)

 With a heavy capital investments in refinery, pipeline infrastructure and oil terminals, retail outlets,
stock is giving a return-on-capital-employed (ROCE) of 18.92, which is very positive. ROCE number
of BPCL is greater than its peers, showing the comparatively higher return per unit of capital
employed. ROE is 19.86, which is also very positive.
 D/E ratio is 0.78, while interest coverage ratio is 6.72. Both the numbers are very good. It shows the
ability of the company to repay its interest payments regularly with generation of a positive net cash
flow.
 Also, the Stock is providing a good dividend yield of 3.34%.
 Current PE ratio of BPCL is 18.9 as compared with its historical average PE ratios around 10-13. It
shows BPCL is currently trading at almost 40% premium valuation when compared with its historical
PE ratio.
 13

Divestment of BPCL

Government is looking to divest its 53.29% stake in BPCL either to IOCL or even private players. This divestment will
help maximize revenue for the government.

Divestment of BPCL
Divestment Option 1 : Merger of BPCL with IOCL

 Merger of BPCL with IOCL will create an energy giant with disproportionate share in the Indian energy
market across refining, fuel retailing and City Gas Distribution players.
 This will be an easiest way out for the government to raise money to meet part of their divestment target
of Rs.1 Trillion.
 Synergy in refining and product sourcing : In terms of synergy, there is lot of overlap in fuel retailing
business and major savings can be achieved by way of coordinated marketing plans.
 Funding the acquisition not a concern : Funding the BPCL stake by IOCL will not be a major
concern, as IOCL’s net debt to equity stands comfortable at 0.55x.
 In addition, BPCL has a much better earnings profile with ROEs of >20% vis-a-vis 15% for IOCL.
 14

Divestment Option 2 : BPCL Stake Sale to Private/ Foreign Players

 BPCL stake sale to private/foreign players will help unlock the real value of the company and help
realize government strategy to bring competition in fuel retailing and break the dominance of the
OMCs, which has over 90% market share.
 Post sale, share of private/foreign players in fuel retailing will increase to around 33% from current 10%.
 BPCL’s well-laid pipeline infrastructure and oil terminals across India can be used by the entrant to
significantly scale up operations in a competitive landscape.

Conclusion

 Divestment to IOCL will create a big monopoly of combined entity (IOCL+BPCL). Although it is
unlikely to alter market dynamics in the near term.
 The divestment to IOCL is the easy way out, but the real price discovery of BPCL stock will happen
with stake sale to foreign/private players and unlock the real value.
 15

Trends
The Oil and Gas sector has remained busy with activity and seeing transformational trends since the past
few years ambitious mainly by increasing climatic concerns and technological growths. The world has
remained moving faster to de-carbonization of liveliness and electrification of mobility, extensively
reinforced by policy necessities and capital commitments besides improving excellence of fuels and
adopting reduced emission norms, an extraordinary achievement being the application of IMO 2020
regulations with effect from January 2020.
Though, with the world reeling below a severe economic crisis owing to the pandemic, forcing
rearrangement of resources and reorganization in asset priorities, and with emissions reducing
considerably due to reduction in energy demand, there is bigger uncertainty around the pace of change.
During the year 2019, global liveliness demand produced by a scanty 0.9%, registering a decline of
around 60% in growth as likened to 2018. The slowdown in global economy and lesser boiler and cooling
supplies due to milder climate in some of the major economies donated to lower growth in primary
energy demand. The major decline in development was logged in coal and gas, with the former de-
growing by 1.7%, while the latter rising by only 1.8%, as compared to a growth of 0.7% and 4.6% in
2018 individually.
Despite declining for the third time in the previous five years, coal still leftovers the second largest source
of energy afterward oil, and the single largest basis of power. However, for the first time in the year
2019, the electricity group from low carbon sources - atomic and renewables - was additional than from
coal. Renewables logged the fastest rate of development at 3.7%, and the highest complete development
in the year 2019 with double digit development in both solar and wind power. Oil, counting biofuels,
grew by just 0.8% (or 0.8 million barrels per day) in 2019, the third lowest rate in the previous ten years.
The decline in oil demand in progressive economies was additional than offset by increase in request in
the rest of the world, led by China and India, though demand development in India was lower than in
2018.
Regionally, with 3.4% growth in energy demand, China demanded the lion’s share (90%) of net global
get-up-and-go demand growth in 2019, though the European Union and United States listed a de-growth
of 1.9% and 0.6% respectively. India noted a growth of just 0.9% in energy demand, amazingly lower
from 4% in 2018 and the lowest ever so far, as the economic activity decelerated and power demand fell,
mainly from irrigation and industrial. The growth rate in energy demand in many progressive economies
and main emerging economies straggled the economic growth rate, as the benefits of energy competence
accrue from technological growths and switching to low carbon answers.
 16

After two years of upsurge, the global energy-related CO2 releases remained almost stable in 2019,
donated by milder weather, developments in energy efficiency and increasing alteration to gas,
renewables and atomic power, counterweighing the influence of growth in economic action. While
progressive economies verified a decline in emissions mostly from the power sector, the rest of the world
knowledgeable an overall increase; however, the release growth rate was ample lower in India, Indonesia
and to some degree in China. The COVID-19 pandemic has the liveliness sector viewing some strange
occurrences, movements and trends. With the universal lockdowns and curtailment of activity, global
energy demand declined; however, the deterioration was irregular across sectors.
Digital requests, residential and healthcare sectors witnessed a flow in demand, which was more than
counterbalance by discount in demand from profitable, industrial and mobility segments. During the first
quarter of 2020 itself, global get-up-and-go demand declined by an appalling 3.8% and CO2 release
levels lowered by an unparalleled 5%. Touching ahead, the energy demand and emission levels are likely
to continue passive for a longer period of time as the pandemic state evolves and financial activity
normalizes; though, some structural changes are looming with the world understanding the power of
climatic disasters and digitalization emerging as an influential enabler and even a supernumerary. The
worldwide prices of crude oil and natural gas continued to be volatile in the year 2019-20 prejudiced by
slowing global financial activity, growths on the US-China trade war, tensions in the Middle East, Brexit
worries, US sanctions on Venezuela and Iran, act of terrorism in Saudi Arabia in September 2019,
altering supply side dynamics between top oil producers and above all, the eruption of COVID-19
pandemic.
During the year 2019-20, the benchmark Brent basic as well as the Indian hamper of crude oil be around
at around USD 61 per barrel as in contradiction of USD 70 per barrel for both the crudes in 2018-19.
Touching in the range of about USD 50 per barrel to USD 75 per tub for almost the entire year, the Brent
crude oil prices misshapen in the month of March 2020, hit by a dual whammy of deteriorating demand
due to the pandemic and teeming supplies due to supply war amongst main creators. This culminated in
considerable inventory pile up, both onshore and offshore, shooting up the consignment market
meaningfully.
The Brent Crude values fell to a low of about USD 13 per barrel in the month of April 2020, the
lowermost in the last 20 years. In an unconceivable and unprecedented slide, the standard WTI crude
futures, which are extensively tracked and traded particularly in the US, fell to a level of undesirable
USD 37.63 per tub in erratic trade throughout mid April 2020. The prices have wired since then as global
demand – supply rebalanced with manufacture cuts by Optec+ in line with the deal clinched in April
2020 and slow reopening of the worldwide economy. Nevertheless, doubt continues. During the year
 17

2019-20, the Brent Dubai difference averaged at USD 0.7 per barrel in favor of Brent, as in contradiction
of USD 0.8 per tub in the preceding year. The Brent crude traded at a best to Dubai crude for greatest
part of the year with recurrent reversal of spreads from best to discount.
This was more marked throughout the period January 2020 to March 2020, when the discount to Dubai
unpolished rose as tall as 5.7 per cask during March 2020. The trend sustained in following months with
Dubai crude citing at discount to Brent crude greatest of the times. In tandem with the crude prices, the
product prices observed high instability during the year 2019-20, averaging inferior than the levels of
the preceding year. Motor Spirit (MS) (Leadless Singapore Platts) (Petrol) prices averaged at USD 67
per barrel, as in contradiction of USD 76 per tub in the previous year while the prices of High-Speed
Diesel (HSD) (Diesel) be around at around USD 74 per barrel as in contradiction of USD 85 per barrel
in the preceding year.
The regular prices of Naphtha and Jet Fuel / Kerosene (SKO) were USD 55 per barrel and USD 73 per
barrel as in contradiction of USD 65 per barrel and USD 84 per barrel correspondingly in the preceding
year. Unlike 2018-19, the MS cracks (Creation prices FOB Singapore minus Dubai Crude) remained
positive throughout the year 2019-20 but in the second fortnight of March 2020 when the cracks
developed negative and touched unparalleled lows of around negative USD 6 per barrel. The MS cracks
averaged at USD 6.7 per barrel in contradiction of USD 5.9 per barrel in previous year, 14% advanced.
However, the regular cracks of Naphtha, Jet Fuel/ Kero and HSD were weaker than the preceding year.
The average cracks of Naphtha were bad USD 5.5 per barrel against unwanted USD 4.1 per barrel in the
preceding year, Jet Fuel/Kero cracks averaged at USD 12.6 per barrel against USD 14.6 per barrel in the
preceding year and HSD cracks be about at USD 14.1 per barrel against USD 15.1 per barrel in the
previous year, registration a decline of 34%, 14% and 7%, correspondingly.
The global oil market, which was previously facing tests due to geopolitical tensions, weaker economic
activity, increasing energy efficiency, excessive refining capacity and energy change trends, has further
been upset by the epidemic, amplifying the likelihood of a much longer unhappy crude and product price
scenario. Replying to the situation, the global oil businesses have slashed their capex spends and resorted
to cash upkeep events to ease off the weight on liquidity and profitability and efficiently serve their debt
duties. On the geopolitical front, with the emergence of US as a robust influencer while Saudi Arabia –
Russia relatives track hot and cold, the global crude marketplace is sighted a understated shift in the
fulcrum of supremacy.
 18

Current Trends in the Industry

India is the third-largest purchaser of oil after the US and China, and which imports around 85% of its
requirements every year, a low and stable oil price regime is a boon. The countrywide lockdown, which
started in the last week of March 2020, contracted the consumption of petroleum products by around
18% during the month itself and moderated the full-year consumption growth to negligible levels.
Consequently, the year 2019-20 ended at around 213.7 MMT as against 213.2 MMT in the previous
year. The natural gas consumption grew by around 5.5% during the year 2019-20, as against 2.8% in the
previous year due to increased adoption of gas in the country supported by a reduction in international
LNG prices.
India’s refining capacity leads consumption of petroleum products by a significant margin, positioning
it as a net exporter, with exports to the tune of around 25% of the total production in 2019-20. With no
significant capacity addition in the past two years, the country’s refining capacity has been almost static
and was at 249.9 MMT as of 1st April 2020. As the pace of economic growth slowed in 2019-20, the
consumption of petroleum products ended almost flat at around 213.7 MMT, as against 213.2 MMT in
the previous year.
Over the years, the country has performed several reforms and taken various initiatives towards overall
economic progress and development and in particular, for the oil and gas sector, keeping pace with the
changing market dynamics, emerging trends, country’s requirements and aspirations. The country has
formulated a lofty Energy Vision propped on the four pillars of Energy Access, Energy Efficiency,
Energy Sustainability and Energy Security as an integral part of the overall objective.
Opportunities and Threats
Oil and gas have played a significant role in energizing the lives of millions of people around the globe
and kept the wheels of the world economy moving for centuries now. However, with expectations of
softer crude oil price regime, reduced CO2 emission levels due to muted economic activity and changes
in consumer behavior, oil and gas are expected to continue fueling the world longer than expected earlier.

The ongoing pandemic has brought the world almost to a standstill, pushing it back by many years. As
economies across the world rise in their battle against the pandemic, economic activity and demand is
expected to revive; however, it will take some time for it to even return to the previous levels. The
economic value of the lockdown is severe and unsettling. In these difficult times, companies need to take
an introspective approach for eliminating redundancies, improving efficiencies. The buoyancy in
 19

international prices of crude oil has a profound impact on the socio-economic situation of an import-
dependent country like India. A low oil price situation, like the one prevailing now, creates an
environment conducive for growth and development without constraining the economy and finances.
With more than 50% of the total petroleum product demand emanating from the transportation sector,
the growing electrification of mobility is likely to decelerate the demand for transportation fuels,
particularly in personal and shared mobility. However, demand in segments like commercial vehicles,
LPG, industrial, commercial and marine fuels and petrochemicals will continue to keep the sector alive.

With oil and gas demand likely to decrease due to increasing adoption of electric vehicles and the rise
of renewable energy, Petrochemicals present themselves as a counterbalance to the Oil and Gas industry.
Globally, oil and gas companies are increasingly pursuing integration along the petrochemical value
chain. The new age crude to-chemicals process offers an opportunity to delink petrochemical production
from conventional intermittent refining/processing. India, which consumes roughly one-fourth of the
world’s average of petrochemicals on a per capita basis, is likely to see a wave in demand as the standards
of living improve, consumption rises and the country progresses towards becoming a developed
economy.
Risks, Concerns and Outlook
The current pandemic situation has put the world in a tight spot inflicting substantial damage to human
lives, economies and business and consumer confidence across the world. Negative surprises on the
pandemic can deteriorate the condition with even more loss of lives, numerous business closures,
widespread poverty and unemployment, a further increase in income inequality, deterioration in the law
and order situation and precipitation of a sovereign debt crisis, particularly in smaller and weaker
economies.
A low international crude oil price regime bodes well for the Indian economy, which imports around
85% of its requirements and pays the price in foreign currency. It helps in controlling inflation, managing
the current account and fiscal deficit situations and containing input costs for many industries and
sectors. However, some of the benefits of low prices get offset with the depreciation of the Indian Rupee
against the US Dollar, which has been the case recently owing to global economic turmoil caused by the
pandemic. The significant erosion in oil and gas demand and high volatility in prices have distressed the
profitability and liquidity position of oil and gas companies across the world and led to spending cuts,
postponement of capital investments and reduction in shareholder dividends, as cash conservation takes
precedence.
 20

The domestic oil and gas market is set to witness enhanced competition with low entry barriers and
existing players enhancing their activities. As the sector faces multiple pressures, the marketing
strategies of the oil and gas companies need to be realigned to the emerging reality, and the corporate
culture is infused with agility to tackle the dynamic environment.

India has led the world in economic growth in recent years and is expected to be the growth leader of
the world in the next few decades, emerging as one of the world’s top three superpowers. The country
has undertaken massive structural and policy reforms to promote growth, ease of doing business,
competitiveness, inclusiveness, digitalization, entrepreneurship and Make in India, attract foreign
investments, augment infrastructure, strengthen corporate governance, bolster the banking and financial
sector, perpetrate an efficient tax structure and enhance India’s image in the international arena.
As the company prepares for historic transition in its ownership structure, it is expected to unlock
tremendous value by way of enhanced professionalism, access to advanced technologies, newer global
market, a diversified product portfolio and improved availability of resources and capital, and create
significant value for all stakeholders.
 21

Business Model of the Company

Bharat Petroleum Corporate Limited is engaged in the business of refining of crude oil and marketing
of petroleum products. It operates through two segments: Downstream petroleum, Exploration, and
Production of Hydrocarbons (E&P). The Downstream Petroleum of BPCL segment includes the
refining & marketing of petroleum products. Which is engaged in the production of liquid & gaseous
fuels, illuminating oils, lubricating oils or greases or other products from crude petroleum.
Partners of BPCL are the Indian government, investors, oil service companies, oil infrastructure
operators, joint ventures, acquisitions, alliances with e-charge tech private ltd to distribute
electronically pre-paid products like EV and mobile cards. BPCL is engaged in activities like
exploration, extraction, transport, refining, storage, trading, distribution, R&D, quality control,
negotiation, engineering, projects, global consultancy and technical training. BPCL has created its own
value proposition with affordable multichannel energy (Retail, lubricants, aviation, refinery, gas, I&C
and LPG. It also has several value propositions at the reliable exploitation of several sources of energy.
Customer Segment of BPCL are chemical & petrochemical industry, power plants, end users (business
and individuals). BPCL’s marketing infrastructure includes network of installations, depots, retail
outlets, aviation service stations and LPG distributors. Their revenue streams are from sale of crude oil,
natural gas & refined products, petrochemical sales, energy, global consultancy & technology training
services and third-party consumables sales in gas station. It has refineries at Mumbai and Kochi, LPG
bottling plants and lube blending plants. It has combined capacity to convert 38.3 million tonnes of
crude oil into fuel.
BPCL shareholding categories include 52.98% government of India, 0.86% government of Kerala,
9.33% BPCL trust for investments, 12.805 mutual funds/ UTI, 0.13% in financial institutions / Banks,
6.68% insurance companies, 12.28% foreign institutional investors, 1.48% private corporate bodies,
3.48% others. BPCL’s net income for the 2020year ₹ 27,880.96 crores. Indian refineries of BPCL
firm employees are around 20,000 and average firm generates 0.31 million metrics tonnes in annual
sales. BPCL, shares of government are selling their entire 52.98 per cent stake. BPCL has Go-Green
approach plan of the sustainable business model through EV charging solutions, biogas generation
from waste and captive power generation from solar and wind energy.
 22

Valuation Drivers

Valuation drivers of one company represents the factors that increases the value of their business in an
event of a sale opportunity.
Here is the list of elements which we have been included in our BPCL’s business valuation model:
 Detailed profit & loss statements, balance sheet and statements of cash flows (for historic,
normalized and projections).
 Price is adjusted according to the projection sheet and assumption sheet.
 Beta information from stock daily closing price.
 Terminal value based on Net Assets.
Ongoing assessment of a BPCL’s value drivers is integral to its success. The valuation process
involves both a quantitative and qualitative assessment of a company.

Valuation Method
Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on
its future cash flows. DCF analysis attempts to figure out the value of an investment today, based on
projections of how much money it will generate in the future. This applies to both financial investments
for investors and for business owners looking to make changes to their businesses, such as purchasing
new equipment.
The purpose of DCF analysis is to estimate the money an investor would receive from an investment,
adjusted for the time value of money. The time value of money assumes that a dollar today is worth more
than a dollar tomorrow because it can be invested. As such, a DCF analysis is appropriate in any situation
where a person is paying money in the present with expectations of receiving more money in the future.
DCF analysis finds the present value of expected future cash flows using a discount rate. Investors can
use the concept of the present value of money to determine whether future cash flows of an investment
or project are equal to or greater than the value of the initial investment. If the value calculated through
DCF is higher than the current cost of the investment, the opportunity should be considered.

In order to conduct a DCF analysis, an investor must make estimates about future cash flows and the
ending value of the investment, equipment, or other asset. The investor must also determine an
appropriate discount rate for the DCF model, which will vary depending on the project or investment
under consideration. If the investor cannot access the future cash flows, or the project is very complex,
DCF will not have much value and alternative models should be employed.
 23

Assumptions
Particulars 2019-20 2020-22 2023-25 2026-forever

Sales -8.28% 12.50% 10.50% 7.00%

COGS -5.23% 7.56% 9.00% 5.00%

Admin. EXP -5.57% 4.50% 5.00% 3.50%

Depreciation 6.00% 6.00% 7.00% 7.00%

Interest 7.00% 7.00% 9.00% 9.00%

Interest Income 10.00% 12.00% 13.00% 10.00%

TAX 30.00% 30.00% 30.00% 25.00%

Opex 9.00% of sales

Capex -3.50% 9.00% 7.50% 6.00%

Reasons
Sales - Due to Covid 19 sales for 2019-20 is in negative. In the 1st quarter of FY 2020 the sales doubled,
therefore the sales is expected to grow @9.50% for 2020-22. Hike is expected in the sales for 2023-25
as a result of the ambitious plan of BPCL which began in 2020. From 2026 onwards the growth rate will
become normal
Cost of Goods Sold- In the previous years the COGS is somewhat 80-85% of the sales. In FY 2019-20
COGS is expected to reduce due to the cost reduction measures taken by the company due to Covid 19.
For 2020-22, COGS is expected to be 7.56% which will jump to 9% in 2023-25. From 2026 it is expected
to be 5%
Administration Expenses - From the observations of the past performance, it is found that Administration
Expenses are 0.40-0.55% of the sales. That trend is expected to continue. Privatization of the company
 24

will have huge impact on its performance. Therefore it is too early to make the prediction. Change in the
policies of the management will have an impact of on the costs.
Depreciation- From the last 3 years, depreciation is 6%. That is expected to remain same till 2022. From
2023 it may rise to 7%.
Interest Income - Interest income in the past is near to 10%. The major source of the interest from
investment. Company is planning to invest in ambitious mega projects. Income is expected to rise.
Tax- Tax is expected to paid rate of 30% till 2025. In 2026 it will 25%.
Capex- Company slashed down it Capex due it Covid 19. It is expected to rise in 2020-22 as the company
planning to invest in projects worth Rs.50300 Cr. Capex is expected to be 7.5% in 2023-25 as the mega
projects of the company are long term and it will continue investing in various projects. From 2026
onwards, Capex will be 6%.
 25

Profit and Loss Statement

Profit After Tax

₹1,20,000.00

₹1,00,000.00

₹80,000.00

₹60,000.00

₹40,000.00

₹20,000.00

₹-

Net profit of the company is expected to grow higher. In the year 2019-20, the profit dipped but soon it
is expected to increase at a growing rate.
 26

Balance Sheet

Enterprise Value: Rs. 90753.56

Debt: Rs. 27209.32
Equity Value: Rs. 63544.24
Value per share: Rs. 241.15
 27

Cash Flow Statement

Particulars 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Operating
Profit
before 19357.51 36547.35 57593.28 69552.53 79403.28 110350.11 126441.81 144094.61
Working
Capital
Change
(A)Net
Cash from / -977.31 13020.03 5316.77 230.00 -16.72 -2857.56 12398.60 -2723.29
(used in)
Operating
Activities
(B)Net
Cash from /
(used in) -7160.80 -5652.75 -4091.85 -2424.91 -937.05 613.49 2076.86 3795.93
Investing
Activities

(C)Net Cash
from / 37162.82 -5811.41 2260.21 4070.07 2378.82 6231.20 -9600.92 3501.91
(used in)
Financing
Activities
Net
Increase /
(Decrease) 29024.71 1555.87 3485.14 1875.17 1425.04 3987.14 4874.54 4574.55
in Cash and
Cash
Equivalents
(A+B+C)
 28

Conclusion
Bharat Petroleum Corporation Ltd. is a Maharatna company. The company will be soon
privatized. There are chances that the capital structure as well as the business structure may
change. Company has a huge growth potential.
Assumptions made in this report are based on the previous year performances as well as the
future projects of the company.
In the upcoming time investing in this company will be a great asset for the investors.
However, the changes in the external factors, inflation, economic factors will have an impact
over the company’s performance.