Hold Hindustan Petroleum; target of Rs 642: Edelweiss

Edelweiss' research report on Hindustan Petroleum

Hindustan Petroleum Corporation (HPCL) reported Q4FY17 PAT of INR 18bn (up 31% YoY, 14% QoQ), 19% below estimate. While refining performance was strong with GRM at USD8/bbl (our estimate: USD5.8/bbl), throughput at 4.6MMT came 1% below estimate. GRM was supported by USD3.3/bbl inventory gains (INR7.4bn) as oil price rose 7% QoQ, and therefore core GRM at USD4.7/bbl came significantly lower than IOCL’s USD6.9/bbl.

Outlook

While IOCL and BPCL have highly profitable near-term refining capacity expansions during period of easing product surplus, HPCL’s projects will gear up in the long term (Vizag refinery expansion in FY20). We estimate HPCL’s FY17-19E EPS CAGR of 13%. We maintain ‘HOLD/SP’ and prefer IOCL.