HPCL: Q4FY13 result - Export parity overhang...; CMP: Rs285; TP: Rs300; Downgrade to HOLD - IDBI Capital

- Topline grew 13.8% YoY on higher volume; in line with expectation: HPCL's Q4FY13 revenue came in-line with expectation, while EBITDA and PAT was slightly ahead of IDBIest. The company's revenue increased 13.8% YoY to Rs597 bn (IDBIest Rs607 bn) on the back of higher crude throughput, higher subsidy payout from the government and upstream companies, and better GRMs. HPCL's crude throughput increased 9% YoY to 4.3mmt while product sales volume remained flattish YoY at 7.75mmt during the quarter. The company received subsidy share of Rs126 bn from the government in Q4FY13 (Rs248 bn for FY13) and Rs11.5 bn from upstream (Rs112 bn for FY13). Consequently, HPCL's net over-recovery came at Rs52 bn during the quarter against our expectation of Rs55 bn.

- Lower GRM offset higher throughput; lower interest expense boosted profitability: EBITDA also improved 57% YoY to Rs86.3 bn due to higher subsidy contribution from the government and upstream, and better GRMs. GRM for Q4FY13 increased to US$4/bbl in Q4FY13 from US$2/bbl in Q4FY12. Further, the company's interest expenses declined sharply (54% YoY and 34% QoQ) to Rs2.8 bn due to lower debt level. However, benefit of lower interest cost was offset by higher tax rate. Total tax rate for FY13 came at a significant 38.6% compared to 25.2% in FY12 and our expectation of 34%. HPCL's net profit increased 66% YoY to Rs76.8 bn in Q4FY13.

- Lower crude oil price and hike in diesel price to add value: Driven by lower crude oil prices and regular diesel price hikes (Rs2.2/ltr since January 2013) and expected Rs2.3/ltr increase in FY14 is likely to bring down under-recoveries significantly to Rs1.1tr in FY14 against Rs1.6tr in FY13. We expect the company's liquidity scenario to improve significantly going forward which would reduce interest expense sharply. We expect HPCL's adjusted EPS to grow to Rs19.7/25.0 in FY14/FY15 from Rs6.7 in FY13.

- Implementation of export parity price remains an overhang; downgrade to HOLD: On the flip side, the government is looking to implement export parity price for the calculation of under-recoveries against current trade parity price. If this gets implemented then it would lower HPCL's GRM by about US$2.7/bbl, which would be a significant negative. Keeping this in mind, Sudeep Anand (Sudeep.anand@idbicapital.com, +91-22-4322 1190) has cut P/BV multiple to 0.7x from earlier 0.8x on FY15E. As a result, we are revising our target price downwards to Rs300 from Rs364. Downgrade to HOLD from ACCUMULATE.

Source : Equity Bulls

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