Nomura has retained its Buy rating on Bharat Petroleum Corporation Limited (BPCL) but lowered its target price to ₹385 from ₹395, warning that elevated crude oil prices could weigh on near-term earnings and lead to a weaker Q3FY27. Prabhudas Lilladher has maintained an Accumulate rating with a revised target price of ₹305 (down from ₹318), maintaining the valuation at 1.2x FY28E P/BV. The contrasting recommendations reflect different perspectives on BPCL's near-term challenges amid volatile crude oil markets.
BPCL reported standalone EBITDA of ₹90 billion in Q2FY27, significantly below Nomura's estimate of ₹112 billion and the consensus of ₹64 billion. The shortfall was largely attributed to a refining gross refining margin of $32.5 per barrel, 20% below Nomura's estimate of $40.8 per barrel. Management cited higher freight costs and a lower discount on Russian crude for the sequential decline in refining margins, despite strong crack spreads. However, fuel-retailing losses narrowed to ₹11.7 per litre in Q2 from ₹27.2 per litre in Q1, reflecting lower average crude prices and full-quarter impact of petrol and diesel price hikes.
With Brent crude above $110 per barrel, Nomura estimates oil marketing companies are facing losses of around ₹26 per litre at the current run rate, potentially resulting in weak Q3 earnings. The brokerage expects investors to moderate expectations for fuel marketing margins, forecasting margins of ₹3 per litre in FY28-29. The cumulative LPG under-recovery buffer rose to ₹173.3 billion from ₹158 billion in Q1 as controlled LPG pricing continued to generate under-recoveries. Nomura expects FY27 earnings to be almost wiped out, factoring in retailing losses and LPG under-recoveries of ₹300 per cylinder.
BPCL is targeting around 37% expansion in refining capacity by 2030 from 35.3 million tonnes per annum currently. The Bina refinery is undergoing a 3.2-million-tonne expansion, while the Mumbai refinery is set for an upgrade to process more high-sulphur crude, with commissioning scheduled for July 2028. A proposed 10-million-tonne integrated greenfield refinery complex in Andhra Pradesh is in the final stages of feasibility study. Management indicated debt-to-equity could peak at around 1.1 times before returning to 0.4-0.5 times after the Andhra project is commissioned.
