PL Stock Report: Hindustan Petroleum Corporation (HPCL IN) - Q2FY24 Result Update – Strong marketing performance drives earnings - HOLD
Hindustan Petroleum Corporation (HPCL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.
Hindustan Petroleum Corporation (HPCL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.
Rating: HOLD | CMP: Rs279 | TP: Rs272
Q2FY24 Result Update – Strong marketing performance drives earnings
Quick Pointers:
§ Implied gross marketing margin of Rs 5.9/ltr in Q2FY24, against margin of Rs0.7/ltr in Q2FY23.
§ Refining inventory gain stood at Rs 9bn, while marketing inventory gain came in at Rs 12bn.
We change our FY24/25 EPS estimates by 8.5/17.6% due to changes in GRM estimates. Hindustan Petroleum Corporation (HPCL) reported better than expected Q2 results with EBITDA of Rs82.2bn (-14% Q/Q; PLe: Rs 59.2bn) and PAT of Rs51.2bn (-18% Q/Q; PLe: Rs34.1bn). Refining margins and gross marketing margins(GMM) came in higher than estimates at US$13.3/bbl and Rs 5.9/ltr. Going ahead, we build in GRMs of US$6/bbl and GMM of Rs4.5/ltr for FY25-26E. The stock is currently trading at 0.9x P/BV and 4.4x EV/EBITDA. On account of weakening Singapore GRMs and inability to pass on increase in fuel costs coupled with upcoming elections, we maintain ‘Hold’ rating with a TP of Rs272 (earlier Rs263) based on 0.7x FY26 P/BV.
§ Operating profit grows YoY : HPCL reported Q2 EBITDA of Rs82.2bn, down 14% QoQ and PAT of Rs 51.2bn, down 18% QOQ. Decline in earnings was due to lower GMMs. On a YoY basis, EBITDA/PAT turned positive against EBITDA loss of Rs8.9 bn and net loss of Rs 21.7 bn. For H1FY24, EBITDA came in at Rs 177.4bn against EBITDA loss of 124.4 bn in H1FY23. Similarly, PAT stood at Rs 113.2bn, against net loss of Rs123.7bn in H1FY23.
§ GRMs come in at US$13.3/bbl: HPCL’s GRM stood at US$13.3/bbl, up 79% QoQ (PLe: US$11.4/bbl). Refining margins grew on the back of rising Singapore GRMs and inventory gains. Refining throughput came in at 5.8 mmt, up 6% QoQ (Ple: 5.8 mmt). Singapore GRMs have softened to an average of US$3.8/bbl in Q3-TD amid demand concerns. Going ahead, we build in GRM of US$6/bbl for FY25/26E.
§ Implied GMM higher than anticipated: Marketing sales came in at 10.7 mmt, down 6% QoQ (Ple: 11.1mmt). GMMs came in at Rs5.9/ltr against our estimate of Rs 4.8/ltr. GMMs declined QoQ due to rise in benchmark petrol, diesel prices and capped retail prices. Going ahead, factoring in upcoming elections we estimate GMMs at Rs 4.5/ltr for FY25-26E.
§ Conference call highlights:1) HPCL commissioned the fully convertible hydro cracker unit at Vizag, which will help improve distillate yields. The refinery will ramp up to 13-13.5 mmt in Q3. 2) 72% work on Rajasthan refinery has been completed and operations are expected to commence in CY24. Capex of Rs 370bn out of total cost of Rs730bn has already been incurred. GRM of US$20/bbl can be expected post commissioning. 3) HPCL is largest vendor of ethanol in the country and has achieved 12% blending. 4) CBG plant in Uttar Pradesh has been commissioned and is in advanced stage of commissioning CBG retailing. 5) The company has 22,000 retail outlets and 9.3 crore LPG customers.6) Incurred capex of Rs 750bn over next 5 yrs, 25-30% would be towards renewable/gas, 20% towards refinery and rest would be downstream marketing.
