Add Hpcl Ltd for the Target Rs 410 by Emkay Global Financial Services Ltd
HPCL reported standalone EBITDA loss/net loss of Rs181/115bn in 1QFY27 vs our estimate of Rs159/168bn loss. The EBITDA miss was on account of lower-thanexpected marketing earnings, partly offset by better GRM and lower opex. Lower depreciation and finance cost along with beat in Other Income led to better than estimated PAT. Reported GRM came in at $23.8/bbl, albeit impacted by crude procurement timing differences, Vizag resid project issues, and inventory losses. There were, however, marketing inventory gains; based on our estimate this implies a blended marketing margin of negative ~Rs20/kg. Gross debt rose, from Rs476bn to Rs726bn qoq. The management alluded to prevailing challenges but stressed on initiatives like balance sheet strengthening, capex control, profitability improvement, and refinery optimization. The resid project should operate normally from 3QFY27. The Barmer refinery has been commissioned and is ramping up-. We remain cautious on OMCs amid the uncertain geopolitical environment along with significant crude price volatility. We cut FY27E/28E EBITDA by 3/5% but rollover to Jun-28E earnings with unchanged TP of Rs410; retain ADD.
Results highlights
HPCL’s refining volumes declined 2% yoy to 6.5mmt (1% beat), with overall utilization steady at 107%. Distillate yield improved sequentially to 77%. Domestic sales volume declined 0.2% yoy to 12.2mmt vs 5.0% yoy degrowth for the industry, with overall volume up 1% yoy, at 13.1mmt (5% beat). Exports rose 54% qoq to 0.88mmt. Petrol/diesel sales rose 6.9%/8.7% yoy vs industry growth of 5.8%/2.8% yoy. Pipeline volume rose 2% qoq to 6.6mmt (down 1% yoy). Total opex declined 1% yoy to Rs54.7bn (14% below estimate). Finance cost was down 21% qoq, at Rs7.7bn, while D/A was down 24% qoq, at Rs18.2bn. Other income at Rs12.8bn came at a 114% beat (up 145% yoy/37% qoq). Share of profit from JVs was Rs294mn vs Rs12.9bn in 4Q. Gross debt rose 42% yoy and 53% qoq to Rs726bn, while capex for 1QFY27 stood at Rs17.3bn.
Management KTAs
Crude has been tied up till Aug-26, with tie-up for Sep underway. Vizag RUF had not stabilized in 1Q, given issues wrt high pressure-temperature and catalysts; but HPCL is gaining crucial learning from this and is confident of stabilizing it soon. 1Q marketing under-recovery was >Rs260bn, of which MS-HSD accounts for >Rs200bn and LPG for Rs50-60bn. Barmer refinery capacity utilization is expected at 50% in 2Q, 80-85% in 3Q, and 100% by 4QFY27 on the refinery side. Petchem would commission by FY27-end. With HRRL, HSD procurement mix would change from 50/27/24% for own/JV/3 rd party sourcing now to 56/40/4% by next year. FY27 capex guidance is Rs97bn; but based on the 1Q runrate, actual capex could be lower if volatility persists.
Valuation
We value HPCL on SOTP-EV/EBITDA-based methodology, with investments valued at 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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