Published on 11/07/2020 1:01:48 PM | Source: ICICI Securities Ltd

Buy Hindustan Petroleum Corporation Ltd For Target Rs.278 - ICICI Securities

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Q4FY20 earnings call takeaways

Key takeaways from Q4FY20 earnings call are:

* Both of HPCL’s refineries are operating at 100% utililsation. Vizag utilisation was 100% while that of Mumbai refinery was 85% even during lockdown. Vizag utilisation was 112%, Mumbai 88% and total 101% in Apr’20 (PPAC data).

* Discounts on crudes used by HPCL may boost GRM by US$3.3/bbl to US$7.6/bbl in Q1FY21E. Our Q1FY21E GRM estimate of US$6/bbl factored crude discounts only on Nigerian and domestic crudes. Nigerian Bonny Light and domestic crude benchmarked to it was at discount of US$2.8/bbl to Brent in Q1FY21 vs premium of US$2.2/bbl in Q4FY20. HPCL indicated that it uses 4.0-4.5mmt (22- 24%) of domestic crude, 65% of its crude is imported from the Middle East while balance is light crude imported from Nigeria and US. Iraq, Saudi Arabia, UAE and Kuwait, which account for 65% of crude refined by it, offered average discount of US$4.7-6.6/bbl on their crudes in Q1FY21 vs premium of US$0.3-3.4/bbl in Q4FY20. HPCL’s CMD in his interview to electronic media has indicated that GRM would be boosted in Q1FY21E by low crude prices; we believe he meant steep discounts on crude would boost GRM.

* Smart recovery in consumption: Petrol and diesel consumption was 82-85% (down 18-15% YoY) of last year’s level in 1-15 Jun’20. HPCL expects auto fuel consumption to be ~90% of pre-lockdown level (down 10% YoY) by end-Jun’20. HPCL indicated that bitumen and lubes consumption was back to 80% of prelockdown level.

* Debt, which was Rs430bn in Mar’20 (Rs286bn in Dec’19), is down to Rs360bn now and is expected to decline to Rs320bn by end-Jun’20. Only Rs70bn of HPCL’s debt is long-term. Increase in short-term debt in end-Mar’20 was due to sharp fall in sales volumes due to lockdown and resultant rise in working capital.

* Capex for FY21E is guided at Rs120bn, of which Rs70bn would be on marketing and Rs50bn on refining.


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