Why BPCL Share Price is Falling

Have you ever been in a situation where you failed even after giving your best? Did you fail because the factors were beyond your control?

Imagine you were preparing for a tough exam. You worked sincerely, putting in all your efforts. But in the last month before exams, you were down with a high fever.

During the crucial time of the revision, you were severely sick. Resultantly, you failed the exams. This is heart-breaking, isn't it?

Well, investors of Bharat Petroleum Corporation (BPCL) are going through a similar situation. BPCL share price is falling rapidly this year.

On a YTD basis, BPCL share price has fallen 16%. In the past one year, it's down 28%.

Read on to find out why BPCL share price is falling.

#1 Withdrawal of Divestment Plan

To achieve its divestment plans, the government had decided to divest its entire stake in BPCL. The government had also initiated the expression of interest (EoI) process for divesting the stake.

It received interest from three bidders. However, soon after all this was done, what followed was the Covid-19 pandemic. This took a toll on BPCL's divestment process.

Two of the three bids, namely US venture funds Apollo Global Management Inc and I Squared Capital Advisors withdrew their bids.

Resultantly, in May 2022, government cancelled its divestment plans for BPCL.

This adversely affected BPCL's share price. It fell rapidly in May 2022.

#2 Poor Financials

BPCL had a tough time coping during the Covid-19 period. Resultantly, its financial performance deteriorated.

For Q4 of the financial year 2021-22, BPCL posted a quarterly turnover of Rs 1,235.5 bn. It's 25% higher compared to the same period year.

However, the profit figures were worrisome. For Q4 of the financial year 2021-22, the quarterly profit was Rs 21.3 bn. It was 82% lower compared to a profit in the same period last year.

Even on an annual basis, the net profit for the financial year 2021-22 was Rs 1,014.6 bn. It is 43% lower compared to the financial year 2020-21.

To add insult to injury, the company recently reported its Q1 results, which were also on the same line. Total sales for Q1 grew 11% compared to last quarter.

However, the profits painted a disappointing picture. BPCL posted a quarterly loss of Rs 62.9 bn!

The total income increased due to rising fuel oil prices, but they are washed away by increase in the costs.

A freeze in price hikes can be seen in BPCL's products, while the global crude oil prices keep rising. This has led to losses for BPCL.

Hence owing to the above reasons BPCL's share price is falling.

Investment Takeaway

Being in the oil and gas sector, BPCL was already facing margin pressures. With the recent developments in the market, BPCL's profit margins have further weakened, raising concern for investors.

The global rise in crude oil price has had a positive effect on the financials of private sector companies like Reliance. This is because they were able to sell fuel in the international market at high prices.

Thus, what should have been positive news for the financials has turned out otherwise because of the freezing of price hikes.

With elections around the corner, there are few chances of any price hike. The divestment plans of BPCL are also on hold.

Hence, BPCL's near future seems dark.

However, the divestment plan may be on hold, but it is not cancelled. The government may sell a its stake in the future when it receives more bids.

An investor must think carefully about the investment horizon before making any decision about BPCL.

Stay tuned to Equitymaster to know more stories like this.

To know more about the company, check out BPCL's financial factsheet and its latest quarterly results.

You can also compare BPCL with its peers on our website.

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BPCL has also come out with its annual report, so don't forget to check out the analysis here: BPCL 2021-22 Annual Report Analysis.

Happy Investing!

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