Buy Hindustan Petroleum Corporation; target of Rs 362: HDFC Securities
HDFC Securities’ research report on Hindustan Petroleum Corporation
HPCL’s 2QFY20 EBITDA came in at Rs 23.19bn (41.1% QoQ) owing to 16.3% QoQ jump in refining throughput, 15.8% rise in gross marketing margin to Rs4.4/ltr and 3.77x jump in reported GRM to USD 2.83/bbl. Core EBITDA (excluding inventory gains and forex losses) was up 20.2% QoQ to Rs 23.88bn. Refining: Refinery throughput was 4.56mmt. Utilisation stood at 122/109% for the Mumbai/Visakh refineries. Core GRM (excluding inventory gains of USD 0.27/bbl) stood at USD 2.56/bbl vs USD 3.27/2.69 in 1Q/2QFY19. GRM were impacted owing to USD8/bbl QoQ fall in LPG cracks but offset by strong HSD (USD15.4/bbl) and MS (USD9.3/bbl) spreads. In the near term, GRM will bump up owing to IMO specification changes which will support HSD cracks. While in the long term, bottom upgradation project at the Visakh refinery will boost GRM. This is owing to jump in the share of middle distillates to 65% from the current 51% while reducing the share of heavy ends to 5% from 18%.
We maintain BUY on HPCL following a decent run in Q2. Furthermore, 55% refinery capacity addition (taking total capacity to 24.5mmt) by FY21E and stable marketing margins post elections gives us confidence in HPCL.
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