Buy Hindustan Petroleum Corporation: Motilal Oswal

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Buy Hindustan Petroleum Corporation: Motilal Oswal

Motilal Oswal is bullish on Hindustan Petroleum Corporation (HPCL) and has recommended buy rating on the stock in its February 10, 2012 research report.

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Motilal Oswal is bullish on Hindustan Petroleum Corporation (HPCL) and has recommended buy rating on the stock in its February 10, 2012 research report.

"HPCL reported EBITDA of INR35.7b for 3QFY12 (v/s our estimate of EBITDA loss of INR1.3b), primarily due to net over-recovery of INR25b (v/s estimated net under-recovery of INR16.3b), led by higher government compensation. Adjusted for forex loss of INR4b stated in interest expense (earlier used to be component of other expenditure), EBITDA was INR31.7b. PAT for the quarter was INR27.3b v/s estimated loss of INR5.9b. Comparative PAT was INR2.1b in 3QFY11 against loss of INR33.6b in 2QFY12. Given the ad-hoc subsidy sharing, we believe quarterly financials are not indicative of the likely full-year performance. We now model OMCs' subsidy sharing at nil in FY12 (similar to FY09 v/s 2% earlier) and upstream sharing at ~40%, with the rest being borne by the government."

"Of the gross under-recovery of INR71.3b in 3QFY12, HPCL received INR33.5b from upstream and INR65.8b from the government. Net subsidy over-recovery was INR28b in 3QFY12. The government compensation of INR65.8b was 2x our estimate, because the compensation received is for two quarters (2QFY12 and 3QFY12) v/s our assumption for only one quarter. In 2QFY12, the government had not given any compensation. During the first three quarters of FY12, the government has given a total of INR450b to all the three OMCs (quarterly run rate of INR150b)."

"We model Brent oil price of USD112/100/95/90/bbl in FY12/FY13/FY14/long-term. For FY12/13, we model upstream share at 40%/38.7% and OMCs' share at nil/9%, with the rest being borne by the government. The stock trades at 10x FY12E EPS of INR28.8 and 0.7x FY12E BV. Key things to watch (apart from subsidy sharing) are the start of commercial production at the Bhatinda refinery at full utilization levels and GRM performance. Maintain Buy," says Motilal Oswal research report.  

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To read the full report click on the attachment