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Research
HPCL - Dismal performance - Centrum
Posted On : 2012-08-13 21:10:02( TIMEZONE : IST )
HPCL posted dismal performance with a loss of Rs92.5bn in Q1 due to the lack of support from the government, forex and inventory losses. The company received subsidies of Rs33.6bn while it absorbed Rs73.2bn leading to huge losses. Average GRMs turned negative at US$(2.0)/bbl due to forex and inventory losses.
Higher YoY revenues due to higher volumes: HPCL reported 8.8% YoY jump in revenues at Rs445.0bn owing to higher sales volumes. Crude throughput remained lower by 9.8% YoY and 9.6% QoQ at 3.6mmt while market sales were higher by 5.4% YoY at 7.7mmt thus benefitting revenues.
Zero government compensation, negative GRMs: HPCL's under-recoveries for Q1 stood at Rs106.8bn of which Rs33.6bn were subsidies given by upstream companies while the remaining Rs73.2bn was absorbed by the company as the government did not provide any compensation. Inventory losses of Rs1.5bn coupled with forex losses led to negative GRMs which stood at US$(2.0)/bbl.
Interest costs flare up, provisioning leads to higher staff expenses: Higher borrowings escalated interest costs which were up 107.9% YoY and 27.0% QoQ at Rs5.5bn. The company provided for Rs3.5bn towards long-term settlement of non-management staff thus leading to 76.2% YoY at Rs9.5bn which further dented profitability. Thus lack of compensation from government, forex & inventory losses, higher interest burden and provisioning led to Rs92.5bn loss during Q1.
Government action needed to boost performance: Like IOC, HPCL also posted huge losses for Q1 due to lack of compensation from the government. Also, upstream subsidies were marginally lower at 31.5% of the total underrecoveries against the usual 33.3% impacting performance. Although, throughput was lower in Q1, market sales were buoyant due to a healthy demand in the domestic market. Performance of OMCs both from a financial standpoint and from stock price perspective is now totally dependent on government action in the form of cash compensation for the under-recoveries incurred during the quarter and hike in retail fuel prices respectively. Without such a move from the government, we do not foresee any positive performance from HPCL. Thus we maintain 'Neutral' on the stock with a price target of Rs337 (earlier Rs351).
