HPCL reported a substantial EBITDA beat on a great deal greater inventory gains in refining and advertising than we anticipated. Marketing volume development was sharply ahead of sector development. Marketing profitability is probably to be restored as crude cools and retail value hikes continue. Despite a 3.2x y/y jump in OCF, borrowings had been flat due to a big improve in inventories and back-ended capex. We reduce earnings 3%/5% for FY22/23E on ongoing restrictions, retain Buy.
Results effectively ahead of our expectations: Reported EBITDA was 101% ahead of JEFe driven by inventory achieve in refining. Reported PAT was 145% ahead of JEFe.
Core refining ahead: Core GRM of US$3.5 was ahead of JEFe (US$1.8). Inventory achieve of US$4.6 was a great deal greater than JEFe (US$ 2.1). Refinery throughput declined 5% y/y in FY21.
Marketing aided by inventory gains: Marketing EBITDA was aided by inventory gains of Rs 29.5bn. Marketing volume +6.3% y/y against +2.5% for sector. Gasoline and diesel industry shares had been flat and +40bps y/y. Core advertising profitability was decrease than our estimate on sharp improve in price.
SGP GRM outlook mixed: Trafigura, in its current Jef U interaction, indicated it expects gasoline spreads to strengthen additional on greater than typical demand through the US driving season in June-July. Naphtha ought to also stay robust on downstream demand. But the outlook on diesel is mixed with continued restrictions in India and weakness in international aviation fuel demand. Diesel is 45% of HPCL’s solution slate.
Retail value revisions have some way to go: Retail costs of gasoline and diesel have enhanced by Rs 2.4-2.8/lt considering the fact that the elections ended. At the present crude value, our calculations recommend additional retail value hikes in the variety of `0.8-4.6/lt in diesel and gasoline respectively are required to restore typical margins.
Healthy dividend, retain Buy: We have reduce advertising volumes by 6% for FY22/23E to element in the Covid-associated restrictions. We have reduce FY22/23E EPS by 3%/5% on the back of the volume cuts. The firm announced a dividend of Rs 22.75/share (8.5% yield). HPCL trades at a wider 60% discount to BPCL on fwd book worth compared to the historical typical of 35%.
Maintain Buy on HPCL with an unchanged Rs 370 PT. We continue to choose HPCL more than BPCL on favorable valuation.