Buy HPCL; target of Rs 600: Emkay

Emkay's research report on HPCL

HPCL’s Q4FY24 SA EBITDA was 11% lower than expected at Rs48.7bn, mainly due to lower cracks & discounts, MR shutdown, and intermediate stockgeneration impact (USD1-1.5/bbl), as reported GRM was USD7/bbl vs our estimate of USD13.5/bbl. Marketing performance was better than expected; but gross/net debt was up 21%/23% QoQ to Rs603/546bn as of Mar-24-end. Mgmt. indicated that the Vizag bottom upgradation benefit (+USD2-2.5/bbl of GRMs) would commence from Q3FY25, besides the first crude at Barmer starting in Q4. FY25 capex target is set at Rs180bn vs. Rs143bn in FY24. We maintain a positive stance on HPCL, led by steady marketing outlook, as general elections pass by.

Outlook

We raise FY25-26E EPS by 4-8% each, largely on better marketing margins; retain BUY with 20% higher Mar-25E TP of Rs600/sh.