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Jefferies Initiates 'Buy' on Bharat Petroleum, Targets Significant Upside
Leading global brokerage firm Jefferies has initiated coverage on Bharat Petroleum Corporation Limited (BPCL) with a strong 'Buy' recommendation, setting an ambitious target price of ₹435 per share. This price objective implies an upside potential of approximately 22% from the current market trading levels, signaling a bullish outlook for the state-owned oil marketing giant.
The brokerage report attributes this optimistic view to a confluence of favorable factors, including anticipated stable crude oil prices, a significant surge in refining profit margins, and improved earnings visibility over the coming year.
Refining Margins Power Earnings Momentum
Jefferies emphasized that BPCL's earnings outlook remains robust, largely supported by the expectation of crude oil prices staying below the crucial $70 per barrel mark. This stability is further bolstered by an oversupplied global market, where crude oil output has outpaced demand growth. Key global bodies like the Organization of the Petroleum Exporting Countries and its allies (OPEC+) have steadily increased production, while demand growth forecasts from the International Energy Agency (IEA) suggest a more measured pace.
This market dynamic has significantly boosted refining profitability. Jefferies noted an impressive year-on-year surge of 51% in Singapore Gross Refining Margins (GRM) for the year-to-date in financial year 2026. GRM, a critical indicator of profitability for refiners, contributes substantially, nearly half, to BPCL's operating profit. The report further highlights that BPCL is well-positioned to capitalize on this trend, having consistently achieved better refining premiums compared to its industry peers since financial year 2023.
Marketing Margins Hold Above Normal Levels
Beyond refining, Jefferies also pointed to the unusual strength in marketing margins, which represent the difference between the selling price of fuels like petrol and diesel and the cost of crude oil. These margins are vital for the earnings of oil marketing companies. According to the report, marketing margins for diesel and petrol are tracking significantly ahead of normative levels, recorded at ₹5.7 and ₹9.6 per liter respectively for the year-to-date in FY26.
The report also suggests that BPCL may be more resilient to crude oil price volatility compared to some competitors. It noted that in a scenario of rising crude oil prices, BPCL's earnings would be less impacted than those of Hindustan Petroleum Corporation Limited (HPCL), which has a more marketing-intensive portfolio.
LPG Compensation Boosts Visibility
A significant development providing relief and enhancing earnings visibility is the government's decision to compensate oil marketing companies for past losses incurred on the sale of liquefied petroleum gas (LPG). These losses accumulated when retail prices were deliberately kept below international rates for extended periods.
Jefferies estimated BPCL's total LPG loss to be around ₹137 billion as of September 2025. The government has announced a comprehensive compensation plan totaling ₹300 billion, which will be disbursed over 12 months. BPCL is set to receive a substantial share of this compensation, estimated at ₹76 billion. This payout is expected to significantly boost the company's earnings during the second half of financial year 2026 and into FY27.
Valuation Remains Appealing
Adding to the positive sentiment, Jefferies observed that BPCL's stock has seen a correction of about 6% in the past month. Currently, the stock is trading at a forward price-to-book (P/B) multiple of 1.5 times, which is notably below its long-term average of 1.8 times. The brokerage report highlighted that BPCL's current discount to the Nifty index on a forward P/B basis stands at 51%, which favorably compares with its long-term average discount of 31%.
Based on these factors and a valuation of 1.6 times December 2026 forward P/B, Jefferies reiterated its 'Buy' call, reinforcing the potential for considerable gains for investors.
Impact
This recommendation could lead to increased investor interest and potentially drive up BPCL's stock price, positively influencing the broader oil and gas sector sentiment in India. The factors cited by Jefferies suggest improved profitability and financial stability for the company.
Impact Rating: 8/10
Difficult Terms Explained
- Crude Oil Prices: The cost per barrel of unrefined petroleum, a key input for oil companies.
- Refining Margins (Singapore GRM): The profit earned by a refinery from turning crude oil into finished products like petrol and diesel, benchmarked by Singapore Gross Refining Margins.
- Marketing Margins: The profit made by oil companies on the sale of refined fuel products to consumers.
- Liquefied Petroleum Gas (LPG): A flammable hydrocarbon gas mixture used as fuel, commonly known as cooking gas.
- Forward Price-to-Book Value (P/B): A valuation metric comparing a company's stock price to its book value per share, projected for future earnings.
- Nifty: A benchmark stock market index in India representing the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange.