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HINDUSTAN PETROLEUM CORPORATION
GRMs lower than expectation
Throughput at 4.1 mmt; Q3FY11 blended GRM at USD 5.1/bbl
Hindustan Petroleum Corporation (HPCL) reported refining throughput at 4.1 mmt
in Q3FY11, higher 34.9% Q-o-Q and 10.2% Y-o-Y. Mumbai refinery’s throughput,
at 1.8 mmt, jumped 19.6% Q-o-Q and 20.6% Y-o-Y. Throughput at Vizag, at 2.3
mmt, was up 3.1% Y-o-Y and 50.3% Q-o-Q (due to no shutdown). Quarterly
blended GRMs, at USD 5.1/bbl (USD 2.7/bbl in Q2FY11 and USD -0.4/bbl in
Q3FY10), were however lower than our estimate of USD 7.3/bbl, probably due to
lower inventory gains. Blended GRMs for 9mFY11 stood at USD 4.0/bbl against
USD 2.5/bbl during 9mFY10.
Net under-recovery of INR 5.4 bn; sales volume up 5.5% Y-o-Y
HPCL’s Q3FY11 marketing gross under-recovery, at INR 34.3 bn, was higher
41.4% Q-o-Q and 16.4% Y-o-Y. Government provided a subsidy of INR 17.5 bn
(assumed nil for Q3FY11) as partial compensation for Q3FY11, while upstream
companies (ONGC, GAIL, and OIL) chipped in subsidies of INR 11.4 bn (33.3% of
gross under-recoveries in Q3FY11). Hence, Q3FY11 net under-recovery was at INR
5.4, while 9mFY11 net under-recovery was at INR 22.6 bn. Domestic marketing
sales for Q3FY11, at 6.5 mmt, were up 5.5% Y-o-Y and 10.8% Q-o-Q due to
higher Indian demand. Also, export marketing sales, at 560 TMT, were up 9.8% Yo-
Y and 229.4% Q-o-Q. With the provision of government subsidy, HPCL reported
PAT of INR 2.1 bn for Q3FY11.
Outlook and valuations: Bullish on crude; maintain ‘REDUCE’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy
sharing and diesel deregulation. We continue to believe that diesel de-regulation
may not happen in the near term due to upcoming assembly elections in some key
states, which could increase OMCs’ under-recoveries. Increasing diesel spreads
have led us to raise our FY11 and FY12 industry-wide under-recovery estimate to
INR 690 bn and INR 820 bn, respectively. Consequently, our FY11 and FY12
earnings estimates for the company are down 22.3% and 12.6%, respectively. We
have also cut our March 2012 SOTP by 3%, to INR 395/share (INR 407/share).
Though we have a positive stance on crude, we continue to believe that earnings
for OMCs will remain uncertain. Hence, we maintain our ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock. At INR 341, HPCL is
trading at 8.9x and 8.6x our FY11E and FY12E EV/EBITDA, respectively.
Throughput at 4.1 mmt; Q3FY11 blended GRM at USD 5.1/bbl
Hindustan Petroleum Corporation (HPCL) reported refining throughput at 4.1 mmt in
Q3FY11, higher 34.9% Q-o-Q and 10.2% Y-o-Y. Mumbai refinery’s throughput, at 1.8 mmt,
jumped 19.6% Q-o-Q and 20.6% Y-o-Y. Throughput at Vizag, at 2.3 mmt, was up 3.1% Yo-
Y and 50.3% Q-o-Q (due to no shutdown). Quarterly blended GRMs, at USD 5.1/bbl
(USD 2.7/bbl in Q2FY11 and USD -0.4/bbl in Q3FY10), were however lower than our
estimate of USD 7.3/bbl, probably due to lower inventory gain. Blended GRMs for 9mFY11
stood at USD 4.0/bbl against USD 2.5/bbl during 9mFY10.
Indian crude average for Q3FY11 was at USD 85.7/bbl, up 13.6% Q-o-Q and 13.5% Y-o-Y.
The INR appreciated 3.5% Q-o-Q and 3.8% Y-o-Y during the quarter; average USD/INR for
Q3FY11 was 44.86.
Marketing sales higher Q-o-Q with increase in petrol and diesel sales
Domestic marketing sales for Q3FY11, at 6.5 mmt, were up 5.5% Y-o-Y and 10.8% Q-o-Q
due to higher Indian demand. Also, export marketing sales, at 560 TMT, were up 9.8% Yo-
Y and 229.4% Q-o-Q.
Net under-recovery of INR 5.4 bn
HPCL’s Q3FY11 marketing gross under-recovery, at INR 34.3 bn, was higher 41.4% Q-o-Q
and 16.4% Y-o-Y. Government provided a subsidy of INR 17.5 bn (assumed nil for
Q3FY11) as partial compensation for Q3FY11, while upstream companies (ONGC, GAIL,
and OIL) chipped in subsidies of INR 11.4 bn (33.3% of gross under-recoveries in Q3FY11).
Hence, Q3FY11 net under-recovery was at INR 5.4, while 9mFY11 net under-recovery was
at INR 22.6 bn.
Outlook and valuations: Bullish on crude; maintain ‘REDUCE’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy sharing and
diesel deregulation. We continue to believe that diesel de-regulation may not happen in the
near term due to upcoming assembly elections in some key states, which could increase
OMCs’ under-recoveries. Increasing diesel spreads have led us to raise our FY11 and FY12
industry-wide under-recovery estimate to INR 690 bn and INR 820 bn, respectively.
Consequently, our FY11 and FY12 earnings estimates for the company are down 22.3%
and 12.6%, respectively. We have also cut our March 2012 SOTP by 3%, to INR 395/share
(INR 407/share). Though we have a positive stance on crude, we continue to believe that
earnings for OMCs will remain uncertain. Hence, we maintain our ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock. At INR 341, HPCL is trading at
8.9x and 8.6x our FY11E and FY12E EV/EBITDA, respectively.
Company Description
HPCL is the third-largest refining company in India with ~19% market share in the total
sales of petroleum products in the country. The company owns and operates two
refineries—Mumbai refinery of 7.9 mtpa capacity and Vizag refinery of 8.3 mtpa capacity.
It has a 16.95% equity stake in Mangalore Refineries (a subsidiary of ONGC) with an
operable capacity of ~12 mtpa. It has a 6,667-strong nation-wide retail outlet network,
the third-largest in India after IOCL and Bharat Petroleum Corporation.
Investment Theme
HPCL is an integrated refining and marketing player with a high share in metros, giving it
the advantage of higher margins, higher growth rate, and lower competition. We
estimate the pipeline’s EBITDA to increase at a CAGR of 37% in three years. Addition of
a new 9-mtpa Bhatinda refinery in North India by FY10 will remove the company’s
marketing skew. Gradual phasing out of auto-fuel subsidies and continued governmental
support in the form of oil bonds will help reduce under-recoveries of oil-marketing
companies.
Key Risks
Increase in crude prices will increase under-recoveries for oil marketing companies.
Any regulatory or policy change in the form of reduction in duty protection, reduction in
quantum of oil bonds or a cut in retail prices will impact HPCL’s earnings.
Competition from private players in auto-fuel marketing may result in reduction in
market share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HINDUSTAN PETROLEUM CORPORATION
GRMs lower than expectation
Throughput at 4.1 mmt; Q3FY11 blended GRM at USD 5.1/bbl
Hindustan Petroleum Corporation (HPCL) reported refining throughput at 4.1 mmt
in Q3FY11, higher 34.9% Q-o-Q and 10.2% Y-o-Y. Mumbai refinery’s throughput,
at 1.8 mmt, jumped 19.6% Q-o-Q and 20.6% Y-o-Y. Throughput at Vizag, at 2.3
mmt, was up 3.1% Y-o-Y and 50.3% Q-o-Q (due to no shutdown). Quarterly
blended GRMs, at USD 5.1/bbl (USD 2.7/bbl in Q2FY11 and USD -0.4/bbl in
Q3FY10), were however lower than our estimate of USD 7.3/bbl, probably due to
lower inventory gains. Blended GRMs for 9mFY11 stood at USD 4.0/bbl against
USD 2.5/bbl during 9mFY10.
Net under-recovery of INR 5.4 bn; sales volume up 5.5% Y-o-Y
HPCL’s Q3FY11 marketing gross under-recovery, at INR 34.3 bn, was higher
41.4% Q-o-Q and 16.4% Y-o-Y. Government provided a subsidy of INR 17.5 bn
(assumed nil for Q3FY11) as partial compensation for Q3FY11, while upstream
companies (ONGC, GAIL, and OIL) chipped in subsidies of INR 11.4 bn (33.3% of
gross under-recoveries in Q3FY11). Hence, Q3FY11 net under-recovery was at INR
5.4, while 9mFY11 net under-recovery was at INR 22.6 bn. Domestic marketing
sales for Q3FY11, at 6.5 mmt, were up 5.5% Y-o-Y and 10.8% Q-o-Q due to
higher Indian demand. Also, export marketing sales, at 560 TMT, were up 9.8% Yo-
Y and 229.4% Q-o-Q. With the provision of government subsidy, HPCL reported
PAT of INR 2.1 bn for Q3FY11.
Outlook and valuations: Bullish on crude; maintain ‘REDUCE’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy
sharing and diesel deregulation. We continue to believe that diesel de-regulation
may not happen in the near term due to upcoming assembly elections in some key
states, which could increase OMCs’ under-recoveries. Increasing diesel spreads
have led us to raise our FY11 and FY12 industry-wide under-recovery estimate to
INR 690 bn and INR 820 bn, respectively. Consequently, our FY11 and FY12
earnings estimates for the company are down 22.3% and 12.6%, respectively. We
have also cut our March 2012 SOTP by 3%, to INR 395/share (INR 407/share).
Though we have a positive stance on crude, we continue to believe that earnings
for OMCs will remain uncertain. Hence, we maintain our ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock. At INR 341, HPCL is
trading at 8.9x and 8.6x our FY11E and FY12E EV/EBITDA, respectively.
Throughput at 4.1 mmt; Q3FY11 blended GRM at USD 5.1/bbl
Hindustan Petroleum Corporation (HPCL) reported refining throughput at 4.1 mmt in
Q3FY11, higher 34.9% Q-o-Q and 10.2% Y-o-Y. Mumbai refinery’s throughput, at 1.8 mmt,
jumped 19.6% Q-o-Q and 20.6% Y-o-Y. Throughput at Vizag, at 2.3 mmt, was up 3.1% Yo-
Y and 50.3% Q-o-Q (due to no shutdown). Quarterly blended GRMs, at USD 5.1/bbl
(USD 2.7/bbl in Q2FY11 and USD -0.4/bbl in Q3FY10), were however lower than our
estimate of USD 7.3/bbl, probably due to lower inventory gain. Blended GRMs for 9mFY11
stood at USD 4.0/bbl against USD 2.5/bbl during 9mFY10.
Indian crude average for Q3FY11 was at USD 85.7/bbl, up 13.6% Q-o-Q and 13.5% Y-o-Y.
The INR appreciated 3.5% Q-o-Q and 3.8% Y-o-Y during the quarter; average USD/INR for
Q3FY11 was 44.86.
Marketing sales higher Q-o-Q with increase in petrol and diesel sales
Domestic marketing sales for Q3FY11, at 6.5 mmt, were up 5.5% Y-o-Y and 10.8% Q-o-Q
due to higher Indian demand. Also, export marketing sales, at 560 TMT, were up 9.8% Yo-
Y and 229.4% Q-o-Q.
Net under-recovery of INR 5.4 bn
HPCL’s Q3FY11 marketing gross under-recovery, at INR 34.3 bn, was higher 41.4% Q-o-Q
and 16.4% Y-o-Y. Government provided a subsidy of INR 17.5 bn (assumed nil for
Q3FY11) as partial compensation for Q3FY11, while upstream companies (ONGC, GAIL,
and OIL) chipped in subsidies of INR 11.4 bn (33.3% of gross under-recoveries in Q3FY11).
Hence, Q3FY11 net under-recovery was at INR 5.4, while 9mFY11 net under-recovery was
at INR 22.6 bn.
Outlook and valuations: Bullish on crude; maintain ‘REDUCE’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy sharing and
diesel deregulation. We continue to believe that diesel de-regulation may not happen in the
near term due to upcoming assembly elections in some key states, which could increase
OMCs’ under-recoveries. Increasing diesel spreads have led us to raise our FY11 and FY12
industry-wide under-recovery estimate to INR 690 bn and INR 820 bn, respectively.
Consequently, our FY11 and FY12 earnings estimates for the company are down 22.3%
and 12.6%, respectively. We have also cut our March 2012 SOTP by 3%, to INR 395/share
(INR 407/share). Though we have a positive stance on crude, we continue to believe that
earnings for OMCs will remain uncertain. Hence, we maintain our ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock. At INR 341, HPCL is trading at
8.9x and 8.6x our FY11E and FY12E EV/EBITDA, respectively.
Company Description
HPCL is the third-largest refining company in India with ~19% market share in the total
sales of petroleum products in the country. The company owns and operates two
refineries—Mumbai refinery of 7.9 mtpa capacity and Vizag refinery of 8.3 mtpa capacity.
It has a 16.95% equity stake in Mangalore Refineries (a subsidiary of ONGC) with an
operable capacity of ~12 mtpa. It has a 6,667-strong nation-wide retail outlet network,
the third-largest in India after IOCL and Bharat Petroleum Corporation.
Investment Theme
HPCL is an integrated refining and marketing player with a high share in metros, giving it
the advantage of higher margins, higher growth rate, and lower competition. We
estimate the pipeline’s EBITDA to increase at a CAGR of 37% in three years. Addition of
a new 9-mtpa Bhatinda refinery in North India by FY10 will remove the company’s
marketing skew. Gradual phasing out of auto-fuel subsidies and continued governmental
support in the form of oil bonds will help reduce under-recoveries of oil-marketing
companies.
Key Risks
Increase in crude prices will increase under-recoveries for oil marketing companies.
Any regulatory or policy change in the form of reduction in duty protection, reduction in
quantum of oil bonds or a cut in retail prices will impact HPCL’s earnings.
Competition from private players in auto-fuel marketing may result in reduction in
market share.
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