Hold HPCL; target of Rs 230: Emkay Global Financial

Emkay Global Financial's research report on HPCL

HPCL’s Q3FY23 SA EBITDA/PAT of Rs20.7bn/Rs1.7bn missed our estimates by 26%/82%. The EBITDA-miss was driven by lower reported GRM at USD9.1/bbl (vs USD13.5 est). PAT was further affected by higher forex losses and lower Other Income. We estimate Q3 core GRM at ~USD11/bbl, affected by the Vizag expansion. Our marketing inventory loss estimate of Rs6-7bn (based on BPCL) implies blended margin of ~Rs3.7/kg (6% beat to our estimate). Gross-debt fell 6% QoQ to Rs642bn (up 72% YoY). While OMCs’ fortunes improve on the marketing front, HPCL’s ongoing major refinery expansions with the lowest refining/marketing ratio put it in a weak spot, with sizeable loss likely in FY23, unless more subsidy is provided (we, however, assume Rs150bn subsidy).

Outlook

We build RPAT of Rs15bn in FY23, but cut FY24/25E EPS by 11/18%, building-in higher finance costs on elevated debt levels. We roll-over to Mar-25, but retain our TP of Rs230. We maintain our HOLD rating.

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