Hold Hindustan Petroleum Corporation; target of Rs 220: ICICI Direct

ICICI Direct's research report on Hindustan Petroleum Corporation

Hindustan Petroleum Corporation’s (HPCL) Q1FY21 results were above our estimates on the profitability mainly due to better marketing segment performance and inventory gains. Revenues fell 35.6% QoQ to Rs 46107.6 crore due to sharp fall in product sales. On the refining front, core refining performance was weak as core GRMs came in at -US$0.9/bbl. Reported GRMs were at zero as inventory gain of US$0.9/bbl was reported. Marketing segment reported inventory gain of Rs 432 crore. Hence, EBITDA came in at Rs 4353.6 crore against estimate of Rs 3832 crore. Reported PAT was at Rs 2813.8 crore (our estimate: Rs 2272.2 crore) against Rs 26.8 crore in Q4FY20.

Outlook

Marketing sales have improved from April lows but are still lower YoY. Fuel demand in July fell MoM due to localised lockdowns and monsoon. Post excise duty hike, HPCL has hiked retail prices by ~Rs 9-12/litre, which will result in steady marketing margins, going forward. However, we remain neutral on HPCL at the current juncture given the volatility in refining margins. We maintain HOLD rating on the stock with a target price of Rs 220 (based on average of P/BV multiple: Rs 247/share, P/E multiple: Rs 192/share).

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