About the Company

Bharat Petroleum Corporation Limited (BPCL), is a fortune 500 oil refining, exploration and
marketing PSU with Navratna status. Following nationalization in 1976, BPCL changed its gears and
embarked upon a Rapid growth path. Turnover, profitability and financial reserves grew by leaps and
bounds. BPCL operates in two segments: downstream petroleum, which is engaged in refining and
marketing of petroleum products, and exploration and production of hydrocarbons (E&P), which
has been identified taking into account the nature of activities and its risks and returns.
The Companys products include gases, which includes poly propelene feed stock, natural gas, liquefied
petroleum gas (LPG) and bharat metal cutting gas; fuels, which includes marine fuels, white oils and
black oils; solvents and special products; bitumen; lubricants, and sulphur. It has refineries at Mumbai
and Kochi, LPG bottling plants and Lube blending plants. Its marketing infrastructure includes
installations, depots, retail outlets, aviation service stations and LPG distributors.
Their Corporate values being : Innovative, Caring, Reliable.
Vision Statement:

We are the most admired global energy company leveraging talent and technology
We are the first choice of customers, always
We exploit profitable growth opportunities outside energy
We are the role model for Health Safety, Security and Environment
We are a great organization to work for
We are a learning organization
We are a model corporate entity with social responsibility

Corporate Mission:
To develop core competence in Exploration and Production of oil and gas with focus on production.
To maximize wealth creation for meeting expectations of stakeholders
To create a pool of knowledgeable and inspired employees and ensure their professional and
personal growth
Financial Strategy of BPCL
BPCL is more focussed towards retail and LPG staretgies. They are more customer centric in their
approach. They have huge sales fromPURE FOR SURE Campaigns.Their priority is to retain its
existing customers and develop new customers. It aims to double its margin on the completion of its
expansion and upgradation of Kochi Refinery. This will result in its self sufficiency. An integrated
marketing paln has been finalized. In addition, planning has been done to transport products in a cost
effective manner. De-regulation of petrol prices helps in setting special prices in rural areas.

Summarizing:
1. Strategically expanding its upstream activities through inorganic and organic growth opportunities
2. Investment in refining and distribution capacity to bridge the gap between sales volume and
production
3. Expand capacities and improve efficienciesat existing installation and refineries
4. Create opportunities with the manufacturing of petrochemicals
5. Improve margin and value through facility upgrades
Question 1: Multiples Comparables
BPCL Actual

BPCL - Estimated
Estimated Price: 232.13 (2014)

Actual Price: 580 (2014)

209.46 (2013)

420 (2013)

Estimated Price: 443.12 (2014)

440.87 (2013)

Remarks
Using Price/Book Value
Multiples
Using Price/Earnings
Multiples

Thus, we can conlude that Price/Earnings multiples is the better indicator of the price of the share as it
a gives a closer estimate to the actual price.
Reservations developed during the exercise:
-

It is difficult to find the comparable companies as the structure and product portfolio should be
inline so as to have relevant comparison. There should have identical operating business
It only provided the snapshot of the current scenario and does not take into account the
cyclical/seasonal variations which is prevelant in the oil and gas sector
There might be accounting differences in reporting values which effect profit multiples
Restating the accounting data in a common format was a difficult task
There is varied differnce in prices over time which results in fluctuations in cashflow or profit

Question 2: Discounted Cash Flows

The discounted cash flow analysis has taken into account the highly speculative growth assumptions
three years into the future. I have made an assumption that the current profitablitity is sustainable.
The terminal growth rate of 4% was assumed. Beta value of 1.05 is considered, the boosted beta is
attributed to better quality of earnings and management. The sales turnover grew by a CAGR of
The cost of equity was estimated to be 13%. The enterprise value was calculated as Rs. 51,561 crores at
the end of 2011. The value of equity was Rs. 31,569 crores. The sales turnover had increased by a CAGR
of 19.7%.

Cost of Capital
12.0%
10.0%

8.6%

8.0%

8.9%

9.7% 10.0% 10.1%

The cost of capital was calculated

for a period of 5 years, which
averaged around 9.2%

8.0%
6.0%
4.0%
2.0%
0.0%

2011

2012

2013

2014

2015

2016

Problems and Uncertainities about the Valuation:

-

It is completely dependant on assumptions that is how the company will operate and how the
market will evolve in the future. According to the assumption the DCF fluctuates widely
Determining the future cash flows with high degre of confidence is difficult

Question 3
Question 4: Pricing Earnings
Abn