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Efficient demand planning delivered growth

HPCL, a subsidiary of ONGC, is an Indian public-sector company engaged in refining, transportation and marketing of petroleum products.

* Q4FY21 revenue grew 13.1% YoY on account of strong demand recovery observed post-lockdown relaxation in FY21. GRM stood at US$ 8.11/bbl (inventory gains of US$ 4.61/bbl) driven by higher volumes in lubes and other high margin products.

* EBITDA reported at Rs. 4,666cr (vs. Rs. 707cr loss in Q4FY20), as margin improved to 6.2% (vs. 1.1% loss in Q4FY20) on low material and operational costs. Adj. PAT declined 24.0% YoY on higher taxes.

* HPCL’s operational capabilities supported by proper demand planning to varying macro trends have enabled them sail through FY21 comfortably. Outlook remains positive with improvement in GRM and potential to execute planned projects. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 336 based on SOTP valuation.

Continued demand recovery drives topline growth

In Q4FY21, revenue grew by 13.1% YoY (+9.0% QoQ) to Rs. 74,843cr, primarily on strong demand recovery in the second half of FY21. Utilization rate for FY21 improved to 104% vs. industry average of 89.7%. Crude throughput for Q4FY21 stood at 4.4mmt vs. 4.5mmt in Q4FY20, whereas domestic and export sales volumes reported at 9.8mmt (+6.3% YoY) and 0.3mmt (-3.1% YoY), respectively. Despite demand declines and tough economic conditions in FY21, HPCL added 2,158 new retail outlets (highest in a year) to drive volumes further.

Lower operational cost aids margins

HPCL’s Q4FY21 GRM stood at US$ 8.11/bbl with inventory gain of US$ 4.61/bbl as sales volume of high margin products increased. EBITDA reported at Rs. 4,666cr in Q4FY21 (vs. Rs. 707cr loss in Q4FY20) and EBITDA margin rose to 6.2% (vs. 1.1% loss in Q4FY20) on account of lower material and operational costs. Reported PAT rose 1.6% YoY to Rs. 3,018cr, however after adjusting for exceptional items, adj. PAT was down 24.0% YoY.

Key concall highlights

* Company completed its share buy-back through open market and acquired 10.5cr equity shares worth Rs. 2,400cr (Rs. 2,954cr including tax).

* Being committed to focus on CNG, HPCL added CNG facilities at 203 outlets (taking total to 674 outlets). 102 additional LPG distributions were added taking total count to 6,192.

* By acquiring remaining 50% stake in JV project, Chhara LNG regasification port became 100% subsidiary of HPCL which strengthens LNG value chain.

* FY21 capex stood at Rs. 14,036cr, of which refining capex was close to Rs. 6,000cr.

* Company announced a final dividend of Rs. 22.75/share for FY21.

Valuation

Considering the robust project pipeline, near-term capacity addition coupled with HPCL’s focus on innovation, we expect the company’s GRM to improve further as demand normalizes in coming quarters. Therefore, with a positive outlook on the company’s growth prospects, we reiterate our BUY rating on the stock with a revised target price of Rs. 336 based on SOTP valuation.

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