Hindustan Petroleum Corporation - Muted performance due to miss in GRM - HDFC Securities

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

Our ADD rating on Hindustan Petroleum Corporation (HPCL) with a price target of INR 292 is premised on (1) recovery in domestic demand for petroleum products in FY22, (2) improvement in refining margins over the coming 18 months, and (3) sustainability of auto fuel gross margin over INR 4.0/lit. Q1FY22 EBITDA was 2% below our estimate and APAT was 9% below, owing to lower-than-expected gross margin, forex loss and lower other income. GRM was reported at USD 3.3/bbl (HSIE: USD 3.7/bbl).

Refining: Crude throughput in Q1 stood at 2.5mmt (-37% YoY, -43% QoQ), on account of the planned shutdown in Mumbai refinery during the quarter and fire accident at Vizag refinery, resulting in an overall combined capacity utilisation of 64% at its refineries in Q1FY22.

Marketing: Domestic marketing sales volume was 8.5mmt (+17% YoY, -14% QoQ). Blended gross margin stood at INR 3.7/lit (-51% YoY, +5% QoQ). We estimate blended gross margin at INR 4.8/lit in FY22E and INR5.0/lit in FY23E.

Con call takeaways: (1) Capex planned for FY22 and FY23E is INR 145bn each. (2) Borrowings as at Jun'21-end stood at INR 352bn. (3) 142 retail outlets added, taking the total to 18,776 as at Jun'21-end. (4) Mumbai refinery expansion should be completed in Aug-21. It is expected to reach 100% utilisation by Q3FY22. (5) The Vizag refinery expansion should be complete by FY22-end, barring bottom upgradation. Post expansion, the capacity will reach 13mmtpa by FY22-end and 15.5mmtpa after completion of bottom upgradation.

Our SOTP at INR 292/sh is based on (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 5.3x on FY23E EPS.

Shares of Hindustan Petroleum Corporation Ltd was last trading in BSE at Rs. 265.05 as compared to the previous close of Rs. 264.95. The total number of shares traded during the day was 136477 in over 2325 trades.

The stock hit an intraday high of Rs. 270.5 and intraday low of 264.45. The net turnover during the day was Rs. 36452714.

Source : Equity Bulls

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