Accumulate Hindustan Petroleum Corporation; target of Rs 343: KR Choksey

KR Choksey's research report on Hindustan Petroleum Corporation

Revenues came in at INR 679.3 bn, up 11.7% YoY and declining QoQ by 5.8% with crude throughput of 4.6 MMT (4.56 MMT in Q3FY19, 4.63 MMT in Q4FY19). Gross margins improved considerably to 13.7% (+211 bps YoY, +838bps QoQ) on the back of inventory gains of INR 34.1 bn as against losses of INR 50.3 bn in Q3FY19. GRM for the quarter came at 4.51/bbl v/s $7.07/bbl in Q4FY18 due to higher crude prices and weak product cracks. Employee expenses declined to some extent both on a YoY (-6.5%) and QoQ (-6.6%) basis, while other expenses increased by 62.7% QoQ (+2% YoY), although it was negated to some extent by forex gains of INR 2.48 bn as v/s forex losses of INR 840 mn in Q4FY18 due to rupee appreciation leading to EBITDA at INR 51.6 bn (+76.8% YoY). OPM stood at 7.6% (+280 bps YoY, +627 bps QoQ). Finance cost increased by 27.2% QoQ (+5.4% YoY) which was negated by higher other income at INR 5.23 bn (+52.5% YoY, +32.7% QoQ) leading to PAT at INR 29.7 bn with NPM of 4.4% (+150 bps YoY, +403 bps QoQ). The board has declared a final dividend of INR 9.40/share on a FV of INR 10.

Outlook

We expect revenues to grow at a CAGR of 7.6% over FY19-21E and EBITDA to grow at a CAGR of 5.9% over FY19-21E. At a CMP of INR 303, HPCL is trading at 6.0/5.3x of FY20/21E EV/EBITDA. We maintain our EV/EBITDA-based target price of INR 343. (potential upside – 13.2%). We maintain BUY rating on the stock.