Upgrade HPCL to 'BUY' – TP Rs.345 - Geojit BNP Paribas

- While it might be slightly early in calling for GoI related catalysts, payouts are expected to happen in the short term which will once again provide clarity on the balance sheet health for the OMCs.

- For FY13, GoI is yet to announce any payouts and the upstream share has been limited to 32% of the under-recoveries, making a strong case for action from GoI.

- GoI payouts are expected to commence during H2FY13 and this catalyst when tied with attractive valuations make a strong case for HPCL.

- GRM's have been stable which along with recent fuel reforms will improve financials.

- The OMCs are currently losing around Rs.9.50 per litre for Diesel, Rs. 31 per litre for Kerosene and Rs. 479 per cylinder for LPG. Petrol losses to date have been around Rs.4200 crores.

- Total losses for FY13 are estimated at Rs.1544 bn and OMCs may have to share 5% of the total losses (contrary to FY09 & 12, when OMC's were fully compensated as a result of record losses).

- HPCL is upgraded to 'BUY' from 'Hold' with a TP of Rs.345 as financials are expected to improve post Q2FY13.

- Although HPCL cannot be a long term investment option, due to its lack of diversified business, analysis suggests that when valuations have bottomed out the shares provided reasonable near-term upside.

- Risks to Target Price: Higher crude prices.

Source : Equity Bulls

Keywords