Buy HPCL; target of Rs 520: Motilal Oswal

Motilal Oswal's research report on HPCL

HPCL’s 1QFY26 EBITDA was 9% below our est., led by lower-than-estimated GRM (USD3.1/bbl). GRM, adj. for inventory gains, stood at USD6.5/bbl. Marketing margin stood 10% above estimates at INR7/lit. Resultant PAT was 11% below our est. at INR43.7b. The Union Cabinet has approved INR300b in LPG compensation to OMCs, which will be paid in 12 tranches. While the disbursement timeline remains undisclosed, we estimate HPCL to receive ~INR40.5b in both FY26/27 (~27% of total compensation). This will result in ~9% increase in HPCL’s FY27E BVPS.

Outlook

HPCL currently trades at 1.2x FY27E P/B, which we believe offers a reasonable margin of safety as we estimate FY27E RoE of 15%. We value the stock at our SoTP-based TP of INR520/sh. Reiterate BUY.