Shares of Hindustan Petroleum Corporation (HPCL) fell 3.51% to close at ₹203.65 on November 4 on BSE.
On November 3, HPCL reported a standalone loss of ₹2,172.14 crore for Q2FY23 against a profit of ₹1,923.51 crore in the same quarter last year. However, the Q2FY23 loss was much lesser than the loss of ₹10,196.94 crore in Q1FY23.
Total income for the quarter under review stood at ₹1,14,452.76 crore against an income of ₹88,263.56 crore in the same quarter last year. Total income in Q1FY23 was ₹1,21,788.52 crore.
The stock ended 1.70% lower on November 3 after the earnings announcement.
Several analysts and brokerage firms found HPCL's Q2 numbers better than expected and maintained their positive views on the stock. However, some of them pointed out its weak financial conditions.
The ones who keep faith
Brokerage Nirmal Bang Institutional Equities maintained a buy call on the stock with a target price of ₹264
"We maintain a buy on HPCL after lowering our target price by 10.5% to ₹264, using unchanged 5 times PE on revised Sept’FY24E. We have cut earnings per share (EPS) for FY23E (increase in loss)/FY24E and raised FY25E EPS a tad – on revised margin, throughput and forex forecasts," said Nirmal Bang.
JM Financial also maintained a buy call on the stock with a target price of ₹255.
"At the current market price, HPCL is trading at nearly 0.6 times FY24 P/B versus a three-year average of 0.9 times and a 10-year average of one time). Hence, despite the huge risk to marketing segment earnings due to sustained high crude price, we maintain buy on HPCL with an unchanged target price of ₹255," said the brokerage firm.
The cautious ones
Kotak Institutional Equities (Kotak Securities) has maintained a sell call on the stock with a target price of ₹160.
Despite no clarity so far, we assume that due to its precarious financial condition, HPCL will be given further compensation of ₹100 bn (nearly ₹70/share) in the second half of the financial year (H2FY23). If not compensated, its net worth will be further eroded significantly in FY23E,” Kotak said.
“The company also needs support, as it has relatively large ongoing capex plans. With large under-recoveries and uncertainty on compensation, oil marketing companies (OMCs) remain unattractive, and HPCL looks most precarious,” said the brokerage firm.
ICICI Securities maintained a ‘reduce’ call on the stock with a target price of ₹186, citing HPCL’s Q2FY23 operating performance was weak.
“FY23E prospects appear muted despite the forecast of double-digit GRMs, given negligible marketing earnings to offset this advantage,” ICICI Securities said, adding that FY24E is likely to see a sharper recovery, with a nearly three times increase in refining throughput, thanks to the commissioning of nearly 7mtpa Vizag refinery, 4-5mtpa Rajasthan refinery (50% share) and the expected MRPL merger (nearly 12mtpa) apart from some revival in marketing margin.
However, the brokerage firm remains cautious due to the sharp increase in leverage and decline in return ratios over FY22-FY24E.
“We continue to maintain our FY23E/FY24E EPS estimates of ₹5.5/53.1 per share to factor in the lower marketing margins, with the target price unchanged at ₹186,” said ICICI Securities.
“Faster execution of capacity expansion, faster recovery in marketing earnings and higher GRMs are the key upside risks while lower marketing margins, lower GRMs and delays in project commissioning are the key downside risks for the stock,” said ICICI Securities.
According to a MintGenie poll, an average of 29 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.