Add HPCL Ltd For Target Rs.410 by Emkay Global Financial Services Ltd
HPCL’s Q4FY26 SA adjusted EBITDA/APAT of Rs84.5bn/Rs34.2bn were a significant beat to our estimates, largely driven by better marketing margins (due to the lag effect in crude sourcing), lower opex, and inventory gains. Amid supply disruption, HPCL prioritized crude availability over slate and sourcing optimization. Accordingly, core GRM of USD10.3/bbl was below our USD12.0/bbl estimate, but blended marketing margin of Rs4.5/kg was a 95% beat. The management assured adequate crude availability, with supplies secured till mid-Jul. However, sharp crude spike, weak product prices, continuing volatility, and currency depreciation are expected to drive Q1FY27 losses, though HPCL remains focused on controllable levers to curtail the impact. Reported GRM came in at USD14.3/bbl, while LPG under-recoveries declined 59% YoY to Rs13.5bn. HPCL booked Rs19.8bn of LPG subsidy. Against the Rs15bn target, Project Samriddhi delivered Rs16.9bn savings in FY26, with the company now focused on Samriddhi 2.0. Incremental benefits from the Vizag residue upgradation facility (RUF) would accrue from Q2FY27, while the Barmer refinery (HRRL) is slated for full commissioning by mid-May-26. We largely retain FY27-28E EBITDA. We retain ADD with an unchanged TP of Rs410.
Results highlights
HPCL’s refining volumes declined 5% YoY to 6.4mmt (in-line), with overall utilization at 106%. Distillate yield declined to 73%. Domestic sales volume rose 2.6% YoY to 12.4mmt vs industry growth of 2.7% YoY, with overall volume up 2% YoY to 13.0mmt (2% miss). Exports fell 14% QoQ to 0.57mmt. Petrol/diesel sales rose 3.6%/3.3% YoY vs industry growth of 6.7%/5.3% YoY. Pipeline volume rose 4% QoQ to 6.5mmt (down 2% YoY). Total opex rose 11% YoY to Rs64.4bn (12% below estimate). Finance cost was up 43% QoQ to Rs9.6bn, while implied net debt fell 2% QoQ to Rs443bn (down 24% YoY). D/A rose 48% QoQ to Rs24.0bn, while other income at Rs9.4bn was a 5% beat (up 17% YoY/36% QoQ). Share of profit from JVs was Rs12.9bn vs Rs1.2bn in Q3. Q4/FY26 capex stood at Rs46.1/157.0bn. The board declared a final dividend of Rs19.3/share.
Management KTAs
Strong Jan/Feb-26 momentum and lagged crude procurement supported Q4 earnings, though the sharp crude spike is likely to drive Q1FY27 losses. The RUF unit has resumed ramp-up after a temporary shutdown due to catalyst clogging, with full stabilization expected from Q2FY27. The HRRL fire incident had limited impact, with MS/HSD production set to begin in mid-May, and full stabilization targeted from Q2FY27. FY27 capex is expected to decline, with some capex curtailed or phased, while debt-to-equity improved to 0.8x. Product and crude inventories remain at pre-crisis levels. Q1FY27 is challenging, with ongoing heavy losses.
Valuation
We value HPCL on an SOTP-EV/EBITDA-based method, with investments valued at a 30% holdco discount. We retain our blended target EV/EBITDA of 6.0x. Key risks: Adverse pricing and margins, currency fluctuations, and GoI policies.
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