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Hindustan Petro.
Reforms stalled; cut PO by 11% to reflect de-rating
9M EPS just Rs12 as government compensated 45% subsidy
Hindustan Petroleum (HPCL) has reported a profit of Rs2.1bn (EPS: Rs6.2) in 3Q
FY11. Its 9M EPS is Rs12.3, which is just 27% of our FY11E EPS of Rs45.2.
Weak 9M EPS is due to the government compensating just 45% of the 9M
subsidy, compared to our assumption that 58.5% of FY11E subsidy would be
compensated. We have not ruled out the government being generous in 4Q and
FY11 EPS being in line with our estimate. We retain our Buy rating on HPCL.
9M EPS Rs24-59 if government compensated 50-67% subsidy
The petroleum secretary indicated in July 2010 that the government would
compensate 50-67% of the FY11E subsidy of R&M companies like HPCL.
However, it has compensated only 44.6% of the 9M subsidy, while another 33%
was reimbursed by the upstream companies. HPCL’s 9M EPS would have been
Rs23.7-59.1 if government had compensated 50-67% of the 9M subsidy. Our
FY11E EPS estimate of Rs45.2 assumes the government compensates 58.5% of
the subsidy. HPCL’s 9M EPS would have been Rs41.7 if 58.5% of the 9M subsidy
had been compensated.
FY11E EPS in line with estimate not ruled out
In 9M FY10, the government compensated just 41% of the subsidy. However, it
was generous in 4Q and compensated 56.5% of the FY10 subsidy. Thus, the
government being generous in 4Q FY11 cannot be ruled out. We have, therefore,
kept our FY11E EPS of Rs45.2 unchanged, despite 9M EPS being just Rs12.3.
Cut PO by 11% to reflect de-rating on stalling of reforms
Reforms have stalled due to the surge in oil price. To reflect the consequent derating,
our PO is now based on a P/E of 8x (9x earlier). The market value of
HPCL’s investments in MRPL and Oil India (OIL) are lowered by Rs10/share. The
total impact is a reduction in our PO by 11%, to Rs441.
Price objective basis & risk
Hindustan Petro. (XHTPF)
Our PO of Rs441 is based on a PE of 8.0x on FY12E EPS (excluding dividend
income from MRPL) of Rs43.3. It also includes the market value of investments in
MRPL (ONGC's subsidiary), Oil India (OIL) and the cost of investment in JV
refinery HPCL Mittal Energy Ltd. of Rs95. Upside risks: (1) Significant reserve
accretion in HPCL's E&P exploration assets in India and abroad (2) the subsidy
R&M companies have to bear is lower than assumed by us or the oil sector is
fully deregulated , (3) Refining margins are higher than forecast by us, (4) Rise in
market prices of MRPL. Downside risks: (1) Indian oil sector continues to be
regulated and HPCL is not adequately compensated for subsidies it has to bear,
(2) steep decline in regional and, hence, HPCL's refining margins, and (3) steep
decline in the market price of MRPL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Petro.
Reforms stalled; cut PO by 11% to reflect de-rating
9M EPS just Rs12 as government compensated 45% subsidy
Hindustan Petroleum (HPCL) has reported a profit of Rs2.1bn (EPS: Rs6.2) in 3Q
FY11. Its 9M EPS is Rs12.3, which is just 27% of our FY11E EPS of Rs45.2.
Weak 9M EPS is due to the government compensating just 45% of the 9M
subsidy, compared to our assumption that 58.5% of FY11E subsidy would be
compensated. We have not ruled out the government being generous in 4Q and
FY11 EPS being in line with our estimate. We retain our Buy rating on HPCL.
9M EPS Rs24-59 if government compensated 50-67% subsidy
The petroleum secretary indicated in July 2010 that the government would
compensate 50-67% of the FY11E subsidy of R&M companies like HPCL.
However, it has compensated only 44.6% of the 9M subsidy, while another 33%
was reimbursed by the upstream companies. HPCL’s 9M EPS would have been
Rs23.7-59.1 if government had compensated 50-67% of the 9M subsidy. Our
FY11E EPS estimate of Rs45.2 assumes the government compensates 58.5% of
the subsidy. HPCL’s 9M EPS would have been Rs41.7 if 58.5% of the 9M subsidy
had been compensated.
FY11E EPS in line with estimate not ruled out
In 9M FY10, the government compensated just 41% of the subsidy. However, it
was generous in 4Q and compensated 56.5% of the FY10 subsidy. Thus, the
government being generous in 4Q FY11 cannot be ruled out. We have, therefore,
kept our FY11E EPS of Rs45.2 unchanged, despite 9M EPS being just Rs12.3.
Cut PO by 11% to reflect de-rating on stalling of reforms
Reforms have stalled due to the surge in oil price. To reflect the consequent derating,
our PO is now based on a P/E of 8x (9x earlier). The market value of
HPCL’s investments in MRPL and Oil India (OIL) are lowered by Rs10/share. The
total impact is a reduction in our PO by 11%, to Rs441.
Price objective basis & risk
Hindustan Petro. (XHTPF)
Our PO of Rs441 is based on a PE of 8.0x on FY12E EPS (excluding dividend
income from MRPL) of Rs43.3. It also includes the market value of investments in
MRPL (ONGC's subsidiary), Oil India (OIL) and the cost of investment in JV
refinery HPCL Mittal Energy Ltd. of Rs95. Upside risks: (1) Significant reserve
accretion in HPCL's E&P exploration assets in India and abroad (2) the subsidy
R&M companies have to bear is lower than assumed by us or the oil sector is
fully deregulated , (3) Refining margins are higher than forecast by us, (4) Rise in
market prices of MRPL. Downside risks: (1) Indian oil sector continues to be
regulated and HPCL is not adequately compensated for subsidies it has to bear,
(2) steep decline in regional and, hence, HPCL's refining margins, and (3) steep
decline in the market price of MRPL.
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