Accumulate Hindustan Petroleum Ltd for Target Rs 444 by Elara Capital
FY27 challenging; policy support key now
We downgrade HPCL (H PCL IN) to Accumulate from Buy and cut our TP to INR 44 4 from INR 627, as elevated crude prices and ballooning retail/LPG under -recoveries are impacting near - term earnings sharply . We cut FY27E/FY28E EPS estimates by 96%/64% to INR 4.3/36.6 and introduce FY29E EPS of INR 80.2. While HPCL delivered a beat on PAT in Q4FY26 , the focus has shifted to scale and duration of under -recoveries in FY27 . K ey concerns are: i) crude remaining above USD 100/bbl in FY27, ii) gasoline/diesel/LPG losses , and iii ) timing of any relief from the government. We believe the stock will be driven less by Q4 results and more by policy support and crude normalization
Q4 strong, but pain ahead in Q1FY27:
Q4 PAT was at INR 4 9.0bn, up 46% YoY and 20% QoQ (Elara estimate : INR 43.7 bn loss ), led by strong retail margin in Jan -Feb and a crude -lag benefit in March . HPCL consumed February -priced crude in March despite crisis start ing in March. However, HPCL clearly indicated that Q1FY27 would be tough due to expensive crude, low product price and high volatility, while refrain ed from quantifying the loss run -rate
Marketing and LPG losses to hurt FY27 earnings:
LPG losses worsened with FY26 LPG under - recovery of ~INR 52bn and Q4 under -recovery of ~INR 13.5bn. Per-cylinder LPG loss rose from ~INR 84 in Q4 to ~INR 170 in April and ~INR 670 in May, implying that FY27 earnings sensitivity to crude and policy support has increased meaningfully. As per our calculations, Q4 gross margin on retail gasoline was INR 3.3/lit and on diesel was INR 1.8/lit. However, per May 2026 data, OMCs are losing INR 10/lit on gasoline and IN R 24/lit on diesel.
Balance sheet, the key cushion:
Standalone debt declined from ~INR 633bn to ~INR 476bn in FY26 . Management attributed this to strong 9MFY26 profit , capex discipline, working -capital reduction and refinancing. This provides HPCL with better ability to absorb FY27 volatility, although earnings visibility is highly dependent on crude.
RUF and HRRL to prop FY28/FY29 earning recovery, but benefits are delayed:
Vizag Residual Upgrade (RUF) was commissioned in January 2026, but the management expects benefits to start from late H1FY27. HPCL Rajasthan Refinery (HRRL) was delayed by a localized fire, and now the management expects ramp -up at the refinery from Q2FY27.
Capex discipline to protect cash flows:
In line with management view , w e assume FY27E capex at INR 58bn, below ~INR 79bn FY26 capex . E levated crude and under -recovery should lead to defer ment of discretionary retail, depot, logistics and non -critical growth capex .
Downgrade to Accumulate from Buy; TP pared to INR 444:
Given the sharp EPS cut for FY27 E - 28E , policy uncertainty and high crude sensitivity, we downgrade HPCL to Accumulate (from Buy) with TP pared to INR 444 (from INR 627). E xpect nil diesel margin in FY27E (from INR 5.2/liter) and FY27E GRM at USD 12.4/bbl (from USD 6.5/bbl). We value HPCL on FY27E P/B, assuming FY29E BVPS of INR 363 (from INR 470 ), 17.2% ROE (from 15.6%), 11.7% cost of equity (unchanged) and 1% long -term growth (unchanged) . We introduce FY29 E .
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SEBI Registration number is INH000000933
