Broker’s Call: HPCL (Hold)

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Target: ₹305

CMP: ₹278.65

Hindustan Petroleum Corporation’s Q2-FY24 standalone EBITDA/PAT stood at ₹8,580 crore/₹5,120 crore, a sizable 27/63 per cent beat to our estimate, led by marketing inventory gains of ₹1,200 crore, at 14 per cent higher than expected implied marketing margins and 27 per cent lower than estimated Other Expenses.

Marketing outperformance was similar to peers’, while reported GRM was lower at $13.3/bbl in Q2 vs. our estimate of $17.0/bbl. Gross/net debt was flat QoQ, at ₹51,800 crore/₹46,000 crore.

HPCL operated Vizag refinery at 11mmtpa capacity in Q2, with 13.5/15mmtpa expected from Q3/early-2024. Mgmt. guided to annual capex runrate of ₹14,000-15,000 crore for coming 5 years; while phase-wise Barmer refinery commissioning is anticipated in CY24. OMCs have clocked a strong H1 & are in a sweet spot, notwithstanding some macro risks.

We raise FY24/25E EPS by 41/21 per cent, based on prevailing trends. We retain Hold on the stock, and revise Sep-24E TP upwards (roll-over) by 13 per cent to ₹305/share. Outlook on OMCs seems relatively constructive.

Key risks: Adverse commodity prices & downstream margins; currency movement; government policies; project issues