Maintain ADD on Hindustan Petroleum Corporation - Inventory gains drive profitability - HDFC Securities

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

We maintain ADD on Hindustan Petroleum (HPCL) with a price target of INR 292, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins. 4Q EBITDA/APAT were 221/201% above our estimates, owing to higher-than-expected core GRM and throughput, lower-than-expected inventory costs, offset by 17% fall in sales and higher-than- anticipated opex. Refining business' inventory gains were INR ~11bn and marketing inventory gains were INR ~29bn. Forex gains stood at INR 1.4bn. Adjusting for these, core EBITDA stood at INR 5bn.

Refining: Crude throughput in 4Q stood at 4.4mmt (-3/+10% YoY and QoQ). HPCL achieved an overall combined capacity utilisation of 115/104% at its refineries in 4QFY21/FY21. Core GRM stood at USD +3.5/bbl vs. USD +9.3/-0.9 in 4QFY20 / 3QFY21.

Marketing: Domestic marketing sales volume was 10.1mmt (+6/-2% YoY/QoQ). Blended gross margin stood at INR 3.5/lit (-16/-25% YoY/QoQ). We expect it to rise and correct to INR 4.8/5.0 per litre in FY22/23E.

Call takeaways: (1) Capex spent in FY21 was at INR 140bn. Capex planned for FY22 is INR 145bn. (2) Core GRMs for 4QFY21/FY21 stood at USD 3.50/1.87/bbl. (3) The Board has declared a final equity dividend of INR 22.75/sh for FY21. (4) The company added 2,158/102/203 new retail outlets/LPG distributorships/CNG dispensers in FY21, taking up the total count to 18,634/6,192/674 respectively. (5) Staff costs declined sequentially as provisions were reversed in 4QFY21.

Change in estimates: We raise our FY23E EPS estimate by 45.8% to INR 50.1 to factor in higher marketing sales and better overall performance in FY21.

Our SOTP target comes to INR 292/sh (5.0x Mar-23E EV/e for standalone refining, marketing and petchem businesses, 5.5x Mar-23E EV/e for pipeline business, and INR 38/sh for other investments). The stock is currently trading at 5.5x on FY23E EPS.

Shares of HINDUSTAN PETROLEUM CORPORATION LTD. was last trading in BSE at Rs.284.7 as compared to the previous close of Rs. 276.15. The total number of shares traded during the day was 434593 in over 5595 trades.

The stock hit an intraday high of Rs. 285.9 and intraday low of 275.55. The net turnover during the day was Rs. 122507651.

Source : Equity Bulls

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