Hindustan Petroleum Corporation Ltd. share price jumped 2.71 per cent in Thursday’s session. The stock touched an intraday high of Rs 273 on BSE before settling at Rs 269, up 2 per cent. HPCL share price has been rising ever since it was reported earlier this week that ONGC Videsh Ltd has sold at least one cargo of Russian Sokol oil to HPCL and Bharat Petroleum Corp after failing to draw interest in a tender. International brokerage firm Haitong has upgraded HPCL stock to ‘OUTPERFORM’ from ‘NEUTRAL’ with a revised target price of Rs 331, implying a 24% rally in near-term.
Delayed but regular price hikes narrowed the marketing loss
Thr brokerage in its research report highlighted that Oil Marketing Companies (OMCs) have resumed price hike on retail price on petrol and diesel from 22 March, though delayed by a couple of weeks from their expectations. “Due to delay in mark-to-market, HPCL is estimated to lose Rs 18.4 bn in the marketing of petrol and diesel in Q4FY22E,” Haitong said.
Higher GRM and inventory gains to benefit:
HPCL’s gross refining margin (GRM) has gained momentum during Q4 led by robust spread from diesel and Jet/Kero. “GRM also improved sharply to $8.2/bbl in Q4FY22TD vs US$6.1/bbl in Q3FY22 and currently hovering at US$16/bbl,” the report said. Further, Haitong estimates a combined inventory gain of Rs 3600 crore on crude and product which would partially offset the losses made in marketing division. “Though, we expect the company to report 62% QoQ fall at EBITDA to Rs 700 crore in Q4FY22E,” it said.
Expecting oil price to normalize in near term; increased offtake from Russia a tailwind
The brokerage expects risk weight on crude oil price to normalize in near term as it does not foresee war to escalate further to other countries. Further, lockdown at key cities in China and slowdown in consumption due to higher prices would help normalizing crude oil price in near term. “Further, any easiness in Iran sanctions and higher offtake from cheaper Russian oil are few tailwinds to the company,” it added.
Stock upgraded to Outperform, Target price hiked
Haitong raised its crude oil price assumption to $80 per barrel for both FY22/FY23 and S$70 for FY24 as opposed to $78, $70 and $65 earlier on the back of higher risk weight due to ongoing Russia-Ukraine war. Owing to marketing losses in Q4, the brokerage changes its EBITDA estimates by -18.4%, +2.7%, +1.4% for FY22, FY23 and FY24 respectively. “We marginal change our TP to Rs 331 from earlier Rs 335 based as EV/EBITDA multiple for marketing business cut to 6.5x from 7x and raised to 6.5x from 6x for refining business,” it said. The stock has corrected nearly 15% since Haitong’s last downgrade and offers 24% upside from current level.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. TheSpuzz Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)