Neutral HPCL; target of Rs 265: Motilal Oswal

Motilal Oswal recommended Neutral rating on HPCL with a target price of Rs 265 in its research report dated August 03, 2023.

Broker Research

August 06, 2023 / 12:10 IST

Neutral

Motilal Oswal's research report on HPCL

HPCL reported a miss on our 1QFY24 EBITDA estimate, due to lower-thanexpected GRM of USD7.4/bbl (vs. est. of USD10.5/bbl) and marketing margins of INR8.4/lit (vs. est. of INR9.6/lit). Refinery throughput was in line at 5.4mmt (up 12% YoY). Singapore GRM of USD4/bbl in 1QFY24 has now improved to ~USD6.6/bbl in 2QFY24’td, which could positively impact refining margins in the coming quarter. However, over the past few quarters, HPCL’s GRM has been lower than other OMCs (IOCL, BPCL), owing to the ongoing expansion at the Vizag refinery. In the marketing segment, sales volumes were 7% above est. at 11.9mmt (up 11% YoY). OMCs are estimated to be generating a healthy gross marketing margin of INR9.3/INR10 per liter on petrol/diesel in 2QFY24’td. Among OMCs, HPCL possesses the highest leverage in marketing and would benefit the most due to strong marketing margins.

Outlook

Despite the potential highlighted above, we reiterate our Neutral rating on the stock because of the project execution risk at Vizag and rising debt levels. We value the stock at 0.8x FY25E P/BV to arrive at our TP of INR265.

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