Sharekhan's research report on Hindustan Petroleum Corporation
Q1FY23 net loss of Rs. 10,197 crore was much higher than our estimates due to a massive loss in marketing business and miss in refining earnings on lower-than-expected improvement in refining margins. Large negative auto fuel marketing margins continued to dent marketing segment’s performance; refining segment also disappointed with 21% miss in GRM at $16.7/bbl (under-performed IOCL with a wide margin of $16/bbl). We believe that H1FY23 would factor in the worst for OMCs and gradual petrol/diesel price hikes or a sustained fall in crude oil price (Brent crude price down to $95/bbl) would help normalise marketing margin. This coupled with a recovery in refining margins would help earnings recover over H2FY23-FY24.
Outlook
We maintain a Buy on HPCL with a revised PT of Rs. 290 (lowered PT to reflects a cut in P/E multiple, given a sharp fall in refining margins) on in expensive valuation of 3.7x/0.8x FY24E EPS/BV and FY24E dividend yield of 10%.
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