Hold Hindustan Petroleum; target of Rs 820: ICICI direct

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ICICI direct’s research report on Hindustan Petroleum CorpHPCL’s Q2FY16 results were below our estimates with revenues declining 18.6% YoY to Rs.42072.3 crore (our estimate: Rs.46238.7 crore) on account of lower crude oil prices. EBITDA at a loss of Rs.57.8 crore was lower than our estimated EBITDA of a profit of Rs.1548.6 crore due to lower-than-expected GRMs of US$2.7 /bbl in Q2FY16 against our estimate of GRMs of US$3.2/bbl due to high inventory losses and weak product cracks. Throughput came in at 4.2 MMT in Q2FY16 vs. 3.8 MMT in Q1FY16. There was nil net subsidy during the quarter against net subsidy of Rs.8.3 crore in Q2FY15. The company reported a loss of Rs.320.5 crore, against our estimate of a profit of 658 crore. Higher-than-expected forex loss of Rs.136 crore also contributed to the loss at the PAT levelOutlook & ValuationHPCL’s performance is expected to improve with: (1) Bhatinda refinery (HMEL), which is expected to report profits in the next two years (2) expansion of the Mumbai refinery to 10 MMTPA and Vizag refinery to 15 MMTPA over the next three or four years and (3) commissioning of the 443 km long Rewari-Kanpur product pipeline with a capacity of 7.98 MMTPA. Going forward, marketing margins are expected to normalize over the next two years. We have a HOLD recommendation on the stock with a target price of Rs.820 (average of P/BV multiple: Rs.748/share and P/E multiple:Rs.892 per share)For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions

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