Buy HPCL; target of Rs 507: Motilal Oswal

Motilal Oswal's research report on HPCL

HPCL’s reported EBITDA of INR29.2b (+1% YoY, -7% QoQ) in 4QFY18 was slightly higher than our estimate of INR27.8b. However, EBITDA adjusted for inventory gains stood at INR27.7b (-2% YoY, +64% QoQ), significantly above our estimate of INR22.4b, primarily led by higher GRM and lower inventory gains.

Outlook

We believe that this sharp correction in stock prices offers an attractive opportunity to add OMCs. HPCL is trading at 8.2x FY20E EPS of INR37.9 and 6.3x FY20E EV/EBTIDA. We value refining at 6x EV/EBITDA, marketing at 8x EV/EBITDA and pipeline at 7.5x EV/EBITDA, and reiterate Buy with a target price of INR507.