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Strong quarter driven by GRM and GMM

Quick Pointers:

* GRM at USD8.5/bbl in Q4FY25 including USD1.4/bbl inventory gain

* Under-recovery of Rs109bn on sale of LPG in FY25

Hindustan Petroleum Corporation (HPCL) reported better-than-expected Q4 results with standalone EBITDA of Rs58bn (up 20.8% YoY; PLe: Rs35.6bn, BBGe:Rs40.5bn) and PAT of Rs33.5bn (up 18% YoY; PLe: Rs10.8bn, BBGe: Rs16.8bn). On the refining front, GRM came in at USD8.5/bbl. GMM stood at Rs4.6/lit, and under-recovery on sale of LPG stood at Rs33bn. The stock is trading at 1.3x FY27 P/BV. In Q1-TD, Singapore GRM has remains at USD3.6/bbl, with strength in past few days. Average marketing margins on petrol/ diesel stand at Rs12.6/9.8/lit. We believe GRMs will rebound to the long-term average of USD5-7/bbl in FY26/27 and build in a GRM of USD6/6/bbl for FY26/27E. On the marketing front, we build in a GMM of Rs4.9/4.5/lit for FY25/26/27E. We maintain Sell rating with a TP of Rs319 based on 1.0x FY27 P/BV.

* GRM much ahead of expectations: HPCL reported a GRM of USD8.4/bbl in Q4FY25 vs our expectation of USD6.6/bbl. GRM in Q4FY24 and Q3FY25 stood at USD7.0/6.0/bbl respectively. Inventory gain in the quarter stood at USD1.4/bbl. GRM for the year stood at USD5.7/bbl vs USD9.1/bbl in FY24. Throughput stood at 6.7mmt in Q4FY25 vs 5.8mmt in Q4FY24 and 6.5mmt in Q3FY25. Throughput in FY25 stood at 25.3mmt vs 22.3mmt in FY24.

* Implied marketing margin at Rs4.6/lit: Implied gross marketing margin stood at Rs4.6/lit vs our expectation of Rs3.6/lit. GMM in Q4FY24 and Q3FY25 stood at Rs4.8/5.7/lit respectively. Domestic sales volume stood at 12.7mmt vs 12mmt in Q4FY24 and 12.9mmt in Q3FY25. For the year, GMM stood at Rs4.4/lit vs Rs5.5/lit in FY24.

* PAT halves in FY25: Led by weaker GRMs and weaker GMMs, HPCL witnessed its consolidated its EBITDA declining from Rs249bn in FY24 to Rs166bn in FY25. Conso PAT also declined from Rs160bn to Rs67bn YoY. Net debt has increased from Rs623bn in FY24 to Rs662bn in FY25.

* Conference call highlights: 1) Expect to cut crude in Barmer in Oct’25 led by Petrochem commissioning in Jan’26; expect integrated margin of USD20/bbl; opex of USD5/bbl; Barmer crude would be 20% of the basket; net debt of Rs350bn; equity inv in Barmer Rs40bn, 2) Capex of Rs145bn in FY25; Rs130-140bn in FY26, 3) HMEL PAT loss in FY25 primarily due to low Petrochem spreads; GRM of USD9.3/bbl in FY25; net debt of Rs330bn 4) Q4 inv gain of Rs6bn in ref, full yr loss of Rs5.5bn; Rs5.5bn gain in mkt, 5) Resid upgradation at Vizag in Q2FY26; +USD2-3/bbl increment to GRM, 6) Russian crude is 35% for FY25; 32-33% for Q4, 7)     ADNOC contract is HH linked, 8) Pipeline throughput 26.9mmt for FY25.

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