Buy Hindustan Petroleum Corporation; target of Rs 320 Sharekhan

Sharekhan's research report on Hindustan Petroleum Corporation

Q2 standalone PAT of Rs. 5,118 crore was significantly above our estimate, led by better-than-expected marketing margin, inventory gain, higher other income and lower tax rate. GRM improved by 79% q-o-q to $13.3/bbl but was below our estimate of $15.5/bbl as well at a discount of $5/bbl versus peers. After super-strong H1, the earnings environment would be challenging for OMCs in H2FY24 as Brent crude oil is on the boil and slump in GRMs. The normalisation of geopolitical risk premiums in oil prices is key to improving sentiments.

Outlook

We maintain a Buy on HPCL with an unchanged PT of Rs. 320 on inexpensive valuation of 3.7x/0.9x FY25E EPS/BV and FY25E dividend yield of ~8-9%. Potential IPO for lubes business or induction of strategic investor could unlock value.