Buy Hindustan Petroleum Corporation; target of Rs 346: HDFC Securities

HDFC Securities is bullish on Hindustan Petroleum Corporation has recommended buy rating on the stock with a target price of Rs 346 in its research report dated May 21, 2019.

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June 06, 2019 / 15:43 IST

26 Aug, 2025 12:21

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HDFC Securities' research report on Hindustan Petroleum Corporation

HPCL’s 4QFY19 EBITDA came in at Rs 51.66bn (+76.8%/5.4x YoY/QoQ) primarily owing to Rs 11.64bn of inventory and forex gains. Adjusting for these gains, core EBITDA was Rs 40.02bn (+40.4/4.5% YoY/QoQ). Refining: Throughput was 4.60mmt (-0.6/+0.9% YoY/QoQ). Utilisation was at 116/120% for the Mumbai/Visakh refineries respectively. Core GRM (excluding inventory gains of USD 2.35/bbl) stood at USD 2.16/bbl vs USD 6.60/bbl in 4QFY18. GRMs were impacted owingto lower light distillate cracks. In Q1FY20, refining margins have recovered from the Q4 lows (S’ore GRM at USD 3.2/bbl to 5.5) owing to increase in gasoline cracks (from USD 3.4/bbl to 12.3). GRMs will be supported by (1) The bottom up-gradation project at the Visakh refinery as the share of middle distillates will increase to 65% from 51% while reducing the share of heavy ends to 5% from 18% (2) Rising share of heavy and sour crude. Marketing: Domestic sales volume was10.11mmt, +7.0% YoY while India’s petroleum product consumption was up 4.19% YoY, thus HPCL has gained market share in Q4. Blended gross margin stood at Rs 6.0/lit (+39.9/65.3% YoY/QoQ). Though these margins seem unsustainable,we believe that they will remain in the range of ~Rs 3/lit in FY20-21E.

Outlook

We prefer HPCL among the OMCs given the (1) Impending 55% refinery capacity addition to 24.5mmt by FY21E, vis-a-vis no visibility on additional capacities for other OMCs (2) Restoration of marketing margins post elections that will benefitHPCL the most as this business contributes ~60% to its EBITDA. Maintain BUY.

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