MOSL: HPCL (Neutral)-Project execution poses greatest risk hereafter
HPCL: Project execution poses greatest risk hereafter
(HPCL IN, Mkt Cap USD5.1b, CMP INR265, TP INR295, 11% Upside, Neutral)
- HPCL reported a beat on our estimates, driven by a better-than-expected performance from the Marketing segment. On the other hand, Refining performance was below estimate due to a planned shutdown at the Mumbai refinery and higher fuel & loss during the quarter.
- The management expects to commission the Mumbai expansion project by the end of the month (which would add 2mmt to the company’s total throughput) and would take another 2–3 months to ramp up capacity to optimal levels. The Vizag refinery expansion would be completed by end-CY21 (while the bottom upgradation unit would be completed by CY22-end).
- The company stated that marketing volumes have recovered quickly this time around with the easing of lockdown restrictions. In July, MS consumption exceeded 2019 levels (+5%), while HSD/ATF consumption was lower (by 8.9%/49% v/s July 2019 levels).
- We expect that with the total phasing out of the COVID lockdowns and the closure of refinery complexes (est. ~3mnbopd over the next 2–3 years), the refining margin would return to its long-term average (of USD5/bbl). SG GRM improved to USD2.9/bbl in July’21 (v/s USD2 in 1QFY22), with the margin averaging higher at ~USD3.3/bbl in the first week of Aug’21.
- As the macroeconomic environment improves, we highlight that the company is – i) the loss of marketing leverage, ii) rising debt, and iii) key risks related to project execution.
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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