HDFC Securities has downgraded Bharat Petroleum Corporation (BPCL) to 'Neutral' with price target of Rs 875.
 
BPCL reported strong results in 4Q as EBITDA came in at Rs 45 billion. Quarterly results are not comparable owing to timing mismatch in subsidy payments and inventory & forex impact. EBITDA for FY15 rose to an all time high of Rs 83 billion (+3%). PAT grew to Rs 51 billion (+25%) helped by lower interest cost (-57%).

Commenting on the investment rationale, the stock broker said, ''The robust results for FY15 were led by multiple factors; strong GRMs; working capital and net under recovery benefits owing to lower crude prices and Better product mix. Going ahead we expect GRMs to moderate from 2QFY16 and minimal incremental benefits from lower crude prices. The only trigger left is the marketing margin expansions in diesel. The marketing biz contributes ~65% to EBITDA and diesel accounts for 54% of the volumes.

We have raised our SOTP target for BPCL to Rs 875. Despite strong fundamentals, we downgrade BPCL to NEUTRAL owing to its stretched valuations and rising concerns on the returns from E&P biz in the prevailing weak gas price scenario.''

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