Edelweiss' report on Hindustan Petroleum Corporation (HPCL)"HPCL reported a stellar Q1FY16 with PAT at INR15.9bn, 30% ahead of consensus. The earnings beat was primarily driven by a sharp jump in GRM, which clocked a 6-year high of USD8.6/bbl (USD7.5/bbl in Q4FY15 and USD2.0/bbl in Q1FY15). Oil prices recovered 15% during the quarter resulting in INR9bn inventory gains, while benchmark GRMs slipped 6% QoQ. Direct benefit transfer (DBTL) on LPG has resulted in further reduction in gross under-recoveries (down 36% QoQ) benefitting HPCL with 20% QoQ fall in interest expense.""We believe OMCs will report dismal Q2FY16 given softening in benchmark GRMs (down 30% QTD) and with oil price correction (down 13% QTD) resulting heavy inventory losses. We believe OMCs will face headwinds from private competition in fuel marketing and there are risks to already declining retail throughputs. HPCL has clocked sharpest re-rating amongst the OMCs pack owing to its higher leverage to fuel marketing. Following a4x rise in stock price since January 2014, we believe earnings upside from deregulation is priced in. Hence, we downgrade to ‘REDUCE’ while retaining our target price of INR818", says Edelweiss research report.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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