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Don't expect fuel price deregulation
We believe the company is going through a process of planning new projects and reorienting the existing asset base. In the
meantime, we get a sense that the ad hoc approach to the fuel pricing is likely to continue, particularly in the current crude oil
price environment. The discussion with investors included:
Company expects its 9 million tonne a year refinery at Bhatinda to be operational in May 2011.
There is a general perception that fuel price deregulation is unlikely in the near term but the company believes it will get
adequate subsidy from the government to be able to report robust profits.
HPCL is planning a new 9m tonne a year refinery in Ratnagiri, where land acquisition is at an advanced stage. However, a
firm decision on the existing 8m tonne/year refinery in Mumbai has not been made yet.
Valuation and risks
We value HPCL at 9x core FY13e EPS, a 10% discount to peers, and the investments at INR316/share. We expect the
FY11e, FY12e and FY13e EPS to be INR19.58, INR27 and INR28, respectively. The stock trades at a PE of 17.4x for
FY11e and 12.6x for FY12e.
Fuel price reforms are a key catalyst for the stock. However, we are cautious due to political issues related to deregulating
diesel and cooking fuels.
Other upside risks are materially higher refining margins, lower oil price and dollar exchange rates leading to lower underrecoveries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Don't expect fuel price deregulation
We believe the company is going through a process of planning new projects and reorienting the existing asset base. In the
meantime, we get a sense that the ad hoc approach to the fuel pricing is likely to continue, particularly in the current crude oil
price environment. The discussion with investors included:
Company expects its 9 million tonne a year refinery at Bhatinda to be operational in May 2011.
There is a general perception that fuel price deregulation is unlikely in the near term but the company believes it will get
adequate subsidy from the government to be able to report robust profits.
HPCL is planning a new 9m tonne a year refinery in Ratnagiri, where land acquisition is at an advanced stage. However, a
firm decision on the existing 8m tonne/year refinery in Mumbai has not been made yet.
Valuation and risks
We value HPCL at 9x core FY13e EPS, a 10% discount to peers, and the investments at INR316/share. We expect the
FY11e, FY12e and FY13e EPS to be INR19.58, INR27 and INR28, respectively. The stock trades at a PE of 17.4x for
FY11e and 12.6x for FY12e.
Fuel price reforms are a key catalyst for the stock. However, we are cautious due to political issues related to deregulating
diesel and cooking fuels.
Other upside risks are materially higher refining margins, lower oil price and dollar exchange rates leading to lower underrecoveries.
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