Motilal Oswal is bullish on HPCL recommended buy rating on the stock with a target price of Rs 308 in its research report dated November 05, 2020.
Motilal Oswal 's research report on HPCL
HPCL reported better-than-estimated EBITDA, driven by healthy margins (core GRM at USD2.7/bbl, marketing margin at INR6/lit) and sales volumes (8.4mmt). Refining throughput was in line with estimates (4.1mmt). MS and HSD demand for the company was +2.6/-4% YoY of the normal level in Sep'20, which further improved to +4.7/+11.5% YoY in Oct'20. Lubes saw 22.5% YoY growth in 2QFY21. HPCL's sales decline was 2% lower than peers due to better inventory and leverage on its marketing business. Borrowings remain similar to end-Mar'20 levels at INR346b (and INR320b excluding lease liability); receivables from the government stood ~INR40b. The board approved the proposal for a buyback, of up to 100m equity shares, i.e. ~6.56% of total paid-up equity share capital; the amount would not exceed INR25b, at a price not exceeding INR250/share. India is seeing significant increase in vehicular traffic movement, with gradual revival in domestic air travel as well. Currently, gross marketing margins for petrol and diesel are trending at INR5-6/liter (which is higher than the normative long-term average of INR3.6/liter). This would be most beneficial for HPCL as it continues to leverage its marketing business.
We value it at 1.3x (20% discount to FY15-18 post the reform period, factoring in the heavy capex and slurry hydrocracker's project execution risk at Vizag) Sep'22E PBV to arrive at a TP of INR308. Maintain Buy.
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