Hold Hindustan Petroleum Corporation; target of Rs 225: ICICI Direct
ICICI Direct’s research report on Hindustan Petroleum Corporation
Hindustan Petroleum Corporation’s (HPCL) Q3FY19 results were below our estimates on the profitability front mainly on account of higher-than-expected inventory losses. The topline increased 5.2% QoQ to Rs 77182.4 crore on account of higher product sales HPCL achieved crude throughput of 4.6 MMT in Q3FY19 in line with our estimates. GRMs were at US$ 3.7/bbl, above our estimate of US$ 2.1/bbl in spite of inventory losses of US$ 6.3/bbl. The company reported strong core GRMs at US$ 10/bbl, which, we believe is unsustainable. On account of the same and also marketing inventory losses, EBITDA came in at Rs 963.2 crore (down 54.6% QoQ) below our estimate of Rs 1039.6 crore Subsequently, reported PAT was at Rs 247.5 crore, above our estimate of Rs 354.7 crore The board has recommended a dividend of Rs 6.5 per share on face value of Rs 10 per share.
We continue to remain cautious on HPCL given the volatility in oil prices and upcoming elections leading to uncertainty over future earnings. We believe the company will continue to trade at lower valuation multiples considering the above risk factors. We have a HOLD recommendation on the stock with a target price of Rs 225 (based on average of P/BV multiple: Rs 230/share and P/E multiple: Rs 219/share).
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