IGI Logo

HPCL’s standalone 4QFY23 EBITDA was 6-10% higher vs. JMFe/consensus at INR 48bn due to strong reported GRM of USD 14/bbl (vs. JMFe of USD 9.6/bbl) – however, this is in line with strong GRM reported by other refiners as well due to usage of cheaper Russian crude. Though marketing segment EBITDA recovered to INR 12.7bn it was lower than JMFe of INR 21.8bn. This implies normalised marketing EBITDA of +INR 1,746/tn vs. JMFe of +INR 2,500/tn. Implied integrated reported EBITDA margin was at INR 2,939/tn in 4QFY23 (vs. INR 993/tn in 3QFY23). Gross debt rose by a marginal INR 2.7bn QoQ to INR 643bn at end-4QFY23. However, for FY23, HPCL reported net loss of INR 89.7bn in standalone and INR 99.8bn in consolidated. We maintain BUY (revised TP of INR 290) on valuations (trading at 0.8x FY25 P/B) and as OMCs’ integrated margin has improved with lower crude price and normalisation of product cracks.

* Earnings beat driven by strong reported GRM of USD 14/bbl vs. JMFe of USD 9.6/bbl: HPCL’s standalone 4QFY23 EBITDA was 6-10% higher vs. JMFe/consensus at INR 48bn due to strong reported GRM of USD 14/bbl (vs. JMFe of USD 9.6/bbl). Other income was also higher at INR 11.6bn; hence, reported PAT was significantly higher at INR 32.2bn (vs. JMFe/consensus of INR 21.5bn/ INR 23.2bn). HPCL’s strong GRM is in line with GRM beat reported by other refiners as well due to sharp jump in usage of cheaper Russian crude (in 4QFY23, RIL’s implied GRM was ~USD 13/bbl, while CPCL and MRPL’s reported GRM was USD 12.5/bbl and USD 15.1/bbl, respectively). Hence, refining segment implied reported EBITDA was significantly higher at INR 34.5bn (vs. JMFe of INR 21bn). Throughput was in line at 5.0mmt.

* Marketing segment EBITDA recovered to INR 12.7bn, but lower than JMFe of INR 21.8bn: Our calculations suggest HPCL’s marketing segment EBITDA recovered to INR 12.7bn in 4QFY23, though it was lower than JMFe of INR 21.8bn. This implies normalised marketing EBITDA of +INR 1,746/tn vs. JMFe of +INR 2,500/tn. Marketing sales volume was 4% below JMFe at 11.1mmt. HPCL’s implied market share in 4QFY23 was lower QoQ at 24.9% in MS (vs. 25.0% in 3QFY23) but higher at 22.4% in HSD (vs. 22.2% in 3QFY23). Implied integrated reported EBITDA margin was at INR 2,939/tn in 4QFY23 (vs. INR 993/tn in 3QFY23). Gross debt rose marginally by INR 2.7bn QoQ to INR 643bn at end-4QFY23. FY23 consolidated capex is INR 95bn. However, HPCL reported FY23 net loss of INR 89.7bn in standalone and net loss of INR 99.8bn in consolidated – first annual loss in the last 20 years.

* Maintain BUY on valuations and as OMCs’ integrated margin has improved with lower crude price and normalisation of product cracks: We raise our FY24 EBITDA by 26% factoring gross auto-fuel marketing margin of INR 4.5/ltr (vs normal INR 3.5/ltr) assuming govt continues to allow OMCs to earn higher margin to recoup their FY23 losses taking advantage of lower crude price; FY25 EBITDA increased by 5% assuming normalised refining and marketing margin. Hence, our TP has been revised to INR 290 (from INR 260) factoring normalisation of working capital. At CMP, HPCL is trading at 0.8x FY25 P/B (10-year avg: 1.0x). We maintain BUY on valuation ground and as OMCs’ integrated margin have improved with lower crude price and normalisation of product cracks. However, HPCL’s earnings will continue to be contingent on volatility in crude price/product cracks and further risk to OMCs’ marketing pricing freedom.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer