Motilal Oswal's research report on HPCL
HPCL beat our EBITDA estimate in 4QFY24, aided by higher-than-expected marketing margin of INR4.8/lit (est. INR4.1/lit). However, refining segment performance was below expectations, with GRM at USD6.9/bbl (our est. USD12.4/bbl). Refinery throughput was above our estimate at 5.8mmt (up 18% YoY) and should improve by another 1.3mmt annually once the bottom upgrade unit is commissioned. The lower-than-expected refining margin in 4QFY24 was attributable to 1) buildup of inter-mediate products (USD1.5/bbl), 2) lowerthan- expected Russian crude iscounts, and 3) INR6b inventory loss. We have moderated our refining margin assumption to USD8/bbl (from USD9/bbl), given weak start to refining GRM, a decline in Russian crude discounts, and costs related to the commissioning of a bottom upgrade unit. Accordingly, we cut our FY25/FY26 EBITDA estimates by 8% each. Other notable updates during the quarter included: 1) Rajasthan refinery remaining on track for commissioning in 4QFY25, and 2) petchem unit at HMEL achieved 90%+ utilization in Jan’24.
Outlook
Our marketing margin assumption of INR3.3/lit on petrol and diesel in FY25/FY26 is materially below current margins. We maintain a BUY rating on the stock, valuing it at 1.4x FY26E P/BV to arrive at our TP of INR600.
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