Maintain ADD on Hindustan Petroleum Corporation - Marketing performing well - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

We maintain ADD on Hindustan Petroleum (HPCL) with a price target of INR 246, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins. 3Q EBITDA was 5% below our estimate, owing to lower-than-expected core GRM, higher-than-expected inventory costs, offset by 6% rise in sales and higher-than-anticipated inventory and forex gains. APAT was in line with our estimates. EBITDA came to INR 33bn (vs. EBITDA of INR 19bn in 3QFY20 and INR 36bn in 2QFY21). Refining business' inventory gains were INR 6bn and marketing inventory gains were INR 7bn. Forex gains stood at INR 3bn. Adjusting for these, core EBITDA stood at INR 17bn (+17/+29% YoY/QoQ).

Refining: Crude throughput in 3Q stood at 4.0mmt (-4/-2% YoY and QoQ). HPCL achieved an overall combined capacity utilisation of over 100% at its refineries. Core GRM stood at USD -0.9/bbl vs. USD 1.5/2.8 in 3QFY20/2QFY21. GRMs declined sequentially with fall in gas oil, gasoline and jet kero cracks.

Marketing: Domestic marketing sales volume was 10.4mmt (-2/+23% YoY/QoQ). Blended gross margin stood at INR 4.6/lit (+19% YoY). We expect it to sustain at INR 4.6/4.7 per litre in FY22/23E.

Call takeaways: (1) Vizag and Mumbai refinery to be commissioned in CY21. Rajasthan refinery to come onstream in CY23. (2) Capex of INR 88bn expended in 9M out of the target of INR 120bn for FY21. Capex target for FY22 is of INR 140bn. (3) Debt currently stands at INR 300bn.

Change in estimates: We raise our FY21/22E EPS estimate by 133/7% each to INR 54.1/36.8 to factor in inventory gains and overall performance in 9MFY21.

Our SOTP target comes to INR 246/sh (5.0x Dec-22E EV/e for standalone refining, marketing and petchem businesses and 5.5x Dec-22E EV/e for pipeline business and INR 34/sh for other investments). The stock is currently trading at 6.1x on FY22E EPS.

Shares of HINDUSTAN PETROLEUM CORPORATION LTD. was last trading in BSE at Rs.229.5 as compared to the previous close of Rs. 225.3. The total number of shares traded during the day was 283696 in over 4104 trades.

The stock hit an intraday high of Rs. 231.2 and intraday low of 226. The net turnover during the day was Rs. 65071027.

Source : Equity Bulls

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