28 May 2016
4QFY16 Results Update | Sector: Oil & Gas
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
315.2 / 4.7
TP: INR1,359 (+46%)
EBITDA in-line, PAT beat; strong turnaround in Bhatinda; expect re-rating
Financials & Valuations (INR b)
2016 2017E 2018E
1,792.8 1,638.9 1,844.1
HPCL’s reported 4QFY16 EBITDA of INR25.9b (inline) supported by GRMs at
USD7.6/bbl. Full year subsidy sharing at nil, as government reversed 3QFY16
sharing. PAT stood at INR15.5b (est. of INR14b; -28% YoY, +49% QoQ) and beat was
due to (a) higher other income at INR4.8b (est 2.8) and (b) lower tax rate at 29.5%
(est. 33%). Full year FY16 standalone EPS stands at INR114/sh (+41% YoY) and cons
EPS at INR145 (3.3x YoY) driven by Bhatinda refinery turnaround. Dividend yield
attractive at ~4%. Maintain
EBITDA in line:
HPCL reported 4QFY16 EBITDA of INR25.9b, (-25% YoY, +19%
QoQ) led by GRM of USD7.6/bbl (est USD7.5/bbl; +1% YoY, -4% QoQ). Variation
in EBITDA on YoY and QoQ basis is explained by marketing margins which stood
at ~INR2/ltr in 4QFY16 (vs regulated INR1.4/ltr). In contrast to peers, HPCL
reported minor adventitious inventory gains at INR290m. Forex loss stood at
Nil subsidy share in FY16:
9MFY16 subsidy was reversed in 4QFY16 leaving
almost nil sharing at INR86m in FY16. In line with FY16, we model OMCs’
subsidy sharing at nil in FY17/FY18.
Strong marketing volume growth:
While, the marketing sales stood at 9.1mmt
(+11% YoY, +5% QoQ), refinery throughput was at 4.7mmt (+6% YoY, +3%
QoQ). HPCL’s gross debt as of 4QFY16 stands at INR213b (vs INR203b on March
Valuation and view:
With inventory losses now largely behind and marketing
margins steadily increasing over regulated era, earnings quality has improved.
We believe HPCL is now a structural investment play - led by higher earnings
predictability and increase in profitability leading to higher RoEs.
Commensurate re-rating pending, in our view.
We increase our FY17/FY18 EPS by ~6%/3% to factor in higher marketing
volumes and other income. We value HPCL at 5.5x for refining and 8x for
marketing to arrive at a fair value of INR1,359 (vs INR1,287 earlier) implying a
46% upside. On FY17/FY18E, the stock trades at 7.9x/7.2x FY17E/FY18E
standalone EPS of INR118/INR130 and 1.5/1.3.x FY17E/FY18E BV.
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
(Rajat.Agarwal@MotilalOswal.com); +91 22 3982 5558
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