CLSA bearish on BPCL

 

Brokerage CLSA is bearish on its outlook on state-run Bharat Petroleum Corporation. The borkerage has reiterated underperform rating on BPCL with a target price of Rs 650, implying a 30 per cent downside. CLSA states that stock price euphoria on the back of crude oil price fall is misplaced.

According to the brokerage, a 16% rally in BPCL's stock on the back of 30% fall in crude since May suggests that negative impact of crude price fall on value of BPCL's deepwater assets in Brazil and Mozambique have been fully ignored.

"These projects need $ 70 per barrel (bbl) to provide returns but futures curve suggests way lower prices through next seven years. Continuation of sub $ 60/bbl price may force write-off value from these reserves," CLSA said in a note.

Potential of large inventory losses due to $15 per barrel fall in Brent price in Q2FY16 along with a quarterly decline in all key refining product spreads are other near term concerns for the stock, it adds.

BPCL shares were trading at Rs 889.85, down 1.32 per cent on the Bombay Stock Exchange.