Expansion Into Renewables And Future Fuels Will Capture Emerging Market Opportunities

Key Takeaways

• BPCL's expansion and joint ventures in renewables could enhance market penetration and diversify revenue sources, improving future earnings potential.
  
• Strategic refinery upgrades and investments in future fuel technologies are set to boost efficiency and capture emerging market opportunities, promoting sustained growth.
  
• Geopolitical tensions, inventory losses, and government subsidy reliance challenge BPCL's profitability, while high capital expenditure and declining margins strain financial resources.

Catalysts

Primarily engages in refining crude oil and marketing petroleum products in India and internationally.

• BPCL’s expansion in retail outlets, with plans to increase the number significantly by year-end, could drive future revenue growth by enhancing market penetration and sales volume.
  
• The company's joint venture agreement with Sembcorp for renewable energy and green hydrogen signifies a forward-looking strategy to diversify energy sources, which could potentially improve long-term revenue streams and net margins.
  
• Increased throughput efficiency in refineries, reaching 114% of nameplate capacity and high distillate yields, suggests an ability to maintain or enhance earnings despite global pricing challenges and volatility.
  
• The commissioning of new technologies such as LNG stations and the expansion into future fuel segments indicates potential new revenue streams, which could positively impact earnings by capturing the evolving energy market.
  
• BPCL's strategic CAPEX plans targeting refinery upgrades and new projects, including a significant petrochemical project at Bina, are poised to elevate performance and expand high-margin product lines, thereby boosting future earnings.

Bharat Petroleum Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bharat Petroleum's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 3.2% in 3 years time.
• Analysts expect earnings to reach ₹146.0 billion (and earnings per share of ₹35.31) by about December 2027, up from ₹131.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹202.2 billion in earnings, and the most bearish expecting ₹106.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2027 earnings, up from 10.2x today. This future PE is greater than the current PE for the IN Oil and Gas industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 1.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.24%, as per the Simply Wall St company report.

Bharat Petroleum Future Earnings Per Share Growth

Risks

• Geopolitical and trade tensions could lead to oil price volatility and uncertainties in global trade growth, affecting BPCL's revenue and overall market conditions.
  
• Significant inventory losses in marketing have been reported, amounting to ₹1,113 crores for the quarter, which could impact net margins and profitability.
  
• Dependence on government subsidies for LPG losses, with ₹2,104 crore absorbed this quarter, creates financial uncertainty if governmental support wanes, impacting net earnings.
  
• High capital expenditure plans for future expansion, approximately ₹16,000 crores for the year, could strain financial resources, especially with increasing debt levels and potential peak leverage, affecting net margins.
  
• Declining Global Refinery Margins (GRM) and volatile product cracks, with a decrease in Russian crude processing affecting refining margins, pose risks to profitability and earnings.

Valuation

• The analysts have a consensus price target of ₹348.77 for Bharat Petroleum based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹460.0, and the most bearish reporting a price target of just ₹250.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹4624.8 billion, earnings will come to ₹146.0 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 15.2%.
• Given the current share price of ₹307.45, the analyst's price target of ₹348.77 is 11.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.