Sharekhan's research report on Hindustan Petroleum Corporation
Q2FY22 operating profit of Rs. 2,724 crore (down 6.6% q-o-q) missed our estimate due to sharp miss in GRM and a slightly lower-than-expected marketing margin. In-line PAT at Rs. 1,924 crore (up 7.2% q-o-q) as miss in operating profit gets offset by lower interest costs and higher other income. HPCL’s GRMs declined by 26.3% q-o-q to 2.4/bbl due to higher F&L and impact of refinery shutdowns. Implied gross marketing margins grew slightly by 2.1% q-o-q. Volumes were decent with a 0.8%/9.4%/3.1% q-o-q rise in refinery throughput/pipeline throughput/marketing sales volume at 2.5 mmt/4.8 mmt/9.1 mmt. Earnings outlook for OMCs has improved considerably, led by the recent sharp improvement in refining margins and likely inventory gains given rally in crude oil prices. Commissioning of Mumbai/Vizag refinery in FY22E would drive refinery throughput and improve FCF. Valuation of 4.9x/1x FY23E EPS/BV is attractive considering a recovery in core earnings, RoE of 21% and dividend yield of ~7%. BPCL’s privatisation could re-rate OMCs.
Outlook
We maintain a Buy on HPCL with a revised PT of Rs. 360.
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