Shares of Hindustan Petroleum Corporation (HPCL) Ltd. are in focus on Friday, October 23, after the company’s second quarter results were a big beat compared to expectations due to its record high refining margins.
HPCL’s profits were much higher than some of the brokerage estimates as well.
Global investment banking firms CLSA, CIti, UBS, were divided on HPCL’s prospects going forward, projecting a downside of up to 4% from currently levels to an upside of as much as 30% as well.
HPCL’s net profit came in at ₹3,482 crore in the September quarter compared to a loss of ₹11,526 crore in the prior quarter. Kotak had estimated the net profit figure to be ₹1,054 crore. Meanwhile, a CNBC-TV18 poll of analysts had estimated a loss of ₹5,864 crore instead.
Its revenue declined 4.3% sequentially to ₹1.3 lakh crore from ₹1.4 lakh crore, which was in-line with estimates.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to ₹9,074 crore from an EBITDA loss of ₹16,141 crore in the prior quarter. It was also sharply higher than estimates of a ₹4,913 crore EBITDA loss, as per the CNBC-TV18 poll.
HPCL’s gross refining margins were at a record high of $33.2 per barrel. Its refining thruput was at 6.2 MT (down 5.6% rom last year and its blended retail margin loss was at ₹0.7 per litre, as per ICICI Securities.
CLSA Remains Bearish On HPCL
The global investment banking firm has an “underperform” rating on HPCL and a target price of ₹330 per share, which is 3.6% lower than its previous closing price.
It said the second quarter results beat expectations due to marketing and refining, aided by lower LPG losses.
Diesel and aviation turbine fuel (ATF) market share gains were positive, and its standalone debt declined by $0.5 billion sequentially.
Citi Indicates Significant Upside For HPCL
It has a “buy” rating on HPCL and a target price of ₹435 per share, a 27.6% upside from its previous closing price.
Citi said that HPCL’s second quarter EBITDA recovered sharply on a sequential basis and was well ahead of its estimates of ₹3,800 crore.
While sequential improvement was supported by lower marketing losses and a reduction in LPG under-recovers, its beat versus expectations was primarily driven by stronger-than-anticipated refining performance and potentially, inventory gains.
The company’ net profit also exceeded both Citi’s ₹2,000 crore estimate and the consensus expectations for another unprofitable quarter.
The recent rise in crude prices and freight rates has once again widened OMC’s marketing losses which strengthens the case for further fuel price hikes, Citi added.
UBS Also Says Sell HPCL
UBS has a “sell” rating on HPCL and a target price of ₹340 per share, which is marginally lower than its previous closing price.
It said the company’s EBITDA was above its estimate of ₹1,300 crore and above consensus expectations of ₹200 crore, driven by refining outperformance.
HPCL’s GRM was $32.2 [er barrel, which was above the Singapore benchmark of $16 per barrel, The same was possibly aided by aided inventory gains, UBS said.
It added that the marketing margins, for diesels and gasoline, remained negative as higher refined product prices were not fully passed through to consumers.
For LPG, the gross under-recoveries increased to ₹3,600 crore while ₹2,000 compensation was received from the Centre during the quarter leading to cumulative net negative buffer increasing from ₹16,400 crore in the first quarter to ₹18,000 crore in the second one, UBS added.
Stock reaction
Of the 33 analysts who have coverage on the stock, 15 have a “buy” rating, seven have a “hold” rating and 11 have a “sell” rating. The consensus estimates of price targets implies an upside potential of 20% from current levels.
HPCL shares ended the previous session 1.9% lower at ₹340.8 apiece. The stock has fallen 5.3% in the past month and has declined 31.7% this year, so far.
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