Sharekhan has given Buy recommendation for Hindustan Petroleum Corporation with a target price of Rs. 340 in its research report issued on Aug 05, 2021
Sharekhan’s research report on Hindustan Petroleum Corporation
Q1FY22 PAT at Rs. 1,795 crore (down 41% q-o-q) lagged estimate by 20% as reported GRM of $3.3/bbl sharply missed estimate and refinery/pipeline throughput was weaker than expected at 2.5 mmt/4.3 mmt, down 42.8%/19% q-o-q. Implied marketing margins rose 7% q-o-q (against an expected q-o-q decline) to Rs. 3,101/tonne led by auto fuel price hikes. Marketing sales volume of 8.8 mmt was in-line; refinery throughput fell due to shutdown for Mumbai refinery. Earnings to recover as volumes revive (petrol/diesel at >105%/~91% of pre-COVID level), likely structural improvement in auto fuel margin, cyclical recovery in GRM and inventory gains. Commissioning of Mumbai/Vizag refinery in FY22E would drive refinery throughput and FCF.
Valuation of 4.3x/0.8 FY23E EPS/BV is attractive considering recovery in core earnings, RoE of 20% and dividend yield of 7-8%. BPCL’s privatisation could re-rate OMCs. We maintain a Buy on HPCL with an unchanged PT of Rs. 340.