Buy Hindustan Petroleum; target of Rs 555: ICICI Securities

ICICI Securities research report on Hindustan Petroleum

Hindustan Petroleum’s (HPCL) recurring standalone EBITDA / PAT of INR 21.6bn / INR 5.3bn in Q3FY24 was sharply up by 29%/3x YoY, but declined materially by 74%/90% QoQ, respectively. 9MFY24 EBITDA/PAT of INR 190.4bn/118.5bn is, however, reflective of significantly better refining and marketing performance seen in FY24 vs the weakness seen in FY23 (full year EBITDA loss of INR 72bn/ net loss of INR 69.8bn). Inventory losses, maintenance and expansion-related shutdowns at Vizag refinery and some losses in diesel margins drove weakness in Q3, but we see strong FY25-26E, driven by: i) Higher refining capacity, ii) stronger GRMs, iii) petchem volumes and iv) steady marketing margins. Valuation of 3.6x FY26E EPS/ 5x EV/EBITDA is extremely attractive. Reiterate BUY.

Outlook

Despite that, our valuation for the company, at ~5.0x average of FY6E EV/EBITDA for refining and marketing business, with listed investments valued at 20% discount to CMP (rolled over to FY26E from FY25E earlier) delivers a target price of INR 555 (earlier INR 550), a material 29% upside from CMP. Reiterate BUY.