MOSL: HPCL (Buy)-Poor margins lead miss; expect marketing to outperform
HPCL: Poor margins lead miss; expect marketing to outperform
(HPCL IN, Mkt Cap USD5.1b, CMP INR237, TP INR340, 44% Upside, Buy)
- HPCL's lower-than-expected refining and marketing margins led to an EBITDA miss in 3QFY20. We have cut our FY20 EPS by 21% owing to the huge miss during the quarter and in light of the weak GRM outlook (trimmed GRM from USD4.2/bbl to USD3.0 for 4QFY20) and the lack of improvement in diesel cracks ahead of IMO.
- In 3QFY20, the company recorded higher-than-expected marketing sales volumes, which partially offset lower-than-expected marketing margins.
- HPCL has >50% EBITDA contribution coming from marketing, which should supplement its earnings in the current subdued GRM environment.
EBITDA miss led by lower refining/marketing margins
- Reported EBITDA was lower than our estimate at INR20.4b (v/s INR3.7b in 3QFY19). Total inventory gains stood at INR3.4b (refining clocked gains of INR2.7b and marketing of INR0.7b).
- Adjusted for inventory and one-offs, EBITDA was at INR17.0b (v/s est. INR30.6b and INR38.3b in 3QFY19).
- Forex loss came in at INR1.7b, which resulted in PBT of INR11.5b.
- PAT came in at INR7.5b (v/s est. INR17b and INR2.5b in 3QFY19).
- For 9MFY20, reported EBITDA was 16% lower YoY to INR59.4b, while PAT was down 15% YoY to INR26.1b. Total inventory loss was at INR1.4b (v/s gain of INR1.4b in 9MFY19). Adj. EBITDA was down 13% YoY to INR60.8b.
Hindustan Petroleum is engaged in the refining and marketing of petroleum products. Co. operates 2 major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tons Per Annum (MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3 MMTPA. Co. also owns and operates a Lube Refinery producing Lube Base Oils of international standards, with a capacity of 428 TMT. Co.'s marketing network is facilitated by a Supply & Distribution infrastructure comprising Terminals, Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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