In terms of sheer scale of operations,the retail network that both have and the refining capacities at their command, these are two companies ,but for the controls on oil and power sector, especially the refining and marketing companies would command a better valuation than the current and their past valuation.
HPCL has a refining capacity of some 16 mio tonnes, BPCL has some 31 mio tonnes and both have some 10,000 plus retail outlets and turnovers of Rs 250,000 Crs plus. The market capitalisation of HPCL is some Rs 12,000 Crs , add to that thge debt of around Rs 40,000 Crs, the total enterprise valuation is just Rs 52,000 Crs,way below what is possible , if only the companies operate freed of price controls.Equity of HPCL is around Rs 333 Crs. Oil subisdy has been debated for too long and was some kind of a hot potato for too long, especially diesel. Apart from the increasing and unmanageable subsidies, there has been overuse and misuse of oil, understandably so. Anything priced low, overuse and excess consumption is almost the norm plus the excessive sale of diesel cars and SUVs in the recent past has clearly brought out the misdirected subsidy .
HPCL , even at a 2-3% post tax net margin on turnover can make a net profit of Rs 5,000 crs to Rs 7,500 Crs ( EPS range of Rs 150- 250 ). Currently HPCL shares are selling at Rs 410, it can very well be thye next huge multi bagger. One has to just cast one's mind to the PSU bank's share prices.SBI was selling at a little over Rs 200, now it is closer to Rs 3000. While the Industries may not be strictly comparable, the point is,Oil Companies , after a debate for over 15 years, appear to be closer to the end of the tunnel and may get to see some light soon and at that point, the share price may ,instead of gradually creeping up, may just shoot through to reach Rs 1500-2500 levels in a short time.
Even if the Enterprise value goes up to Rs 100,000 Crs , with a constant debt factor, mkt cap can go up to Rs 60,000 Crs (4 times approx)
BPCL has an equity of Rs 730 Crs ,and at Rs 600 per share , a mkt capitalisation of Rs 42,000 Crs. Has a debt of around Rs 27,000 Crs. Total enterprise valuation is Rs 69,000 Crs
Advantage with BPCL is, besides higher refining capacity (30 Mio tonnes ) , it also has interests in oil exploration which are on the verge of getting productive anytime.
BPCL also has the potential of being multi bagger, could well reach Rs 2500-3500 per share
Of course the imponderable is the ability of the Govt to get rid of overall subsidy and get the Companies operate under a free pricing regime.
One more thing is, such free pricing would encourage private players and add to the competition but HPCL and BPCL with the current set up and facilities and head start would still command a price which would be 5-6 times the current price
