HPCL - BUY, 41% upside - Ambit

HPCL will declare its 1QFY14 results today. We expect the company to deliver a net loss of Rs85.9bn (vs Bloomberg consensus estimates of Rs22bn). Our earnings expectations were based on the assumption: (a) that the absence of the Government's compensation for 1QFY14 under-recoveries would mean that oil marketing companies (OMCs) would bear Rs110bn of under-recovery, (b) forex loss was undertaken on USD-denominated debt, and (c) of inventory losses. Crude inventory loss is likely to result in GRM of only US$2.5/bbl (vs US$2.1/bbl in 4QFY13 and negative US$2.1/bbl in 1QFY13). However, press reports suggest that the Government is likely to pay ~Rs80-100bn to the OMCs as compensation for the remaining 1QFY14 under-recoveries. Hence, HPCL's earnings could be significantly higher than our expectation.

Source : Equity Bulls

Keywords