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Hindustan Petroleum
F3Q11 Helped by Refining and Government Support
Quick Comment: HPCL reported F3Q11 results;
EBITDA of Rs7.8bn fell ~68% on a sequential basis.
Reported PAT of Rs2.1bn was down ~90% on a
sequential basis. We highlight that net subsidy burden,
up ~5.7x YoY, affected the results. Strong GRMs, higher
refining throughput and government budgetary support
were the key drivers of the results.
HPCL’s net subsidy burden was Rs5.4bn in F3Q11:
Gross under-recoveries of ~Rs34.3bn rose 16% YoY and
41% sequentially. The company received ~Rs11.4bn
from upstream companies in subsidy support. The
government has approved budgetary support of
~Rs17.5bn for partial compensation of under-recoveries.
GRMs ahead of our expectation; throughput
recovered as refineries came out of shutdown:
F3Q11 GRMs of US$5.1/bbl were up 93% QoQ and
US$0.77/bbl ahead of our estimate of US$4.3/bbl.
Refining throughput rose ~35% QoQ at 4.1MT; both the
Mumbai and Vizag refineries came out of
maintenance-related shutdown.
Rising interest costs, a key negative: Interest costs
increased by ~10% on a YoY and QoQ basis as
borrowings increased. We highlight the risk of increasing
interest costs in a high oil price environment, especially
if cash from government budgetary support is delayed.
Marketing volumes remain robust, but margins were
lackluster: HPCL sold 7.1Mt of products, registering
solid growth of 17% QoQ and 6% on a YoY basis.
However, marketing margin, after accounting for
upstream and budgetary support, stood at US$1/bbl.
What does this mean for our estimates? Based on
F3Q11 results, we currently maintain our estimates. We
now expect the government to compensate downstream
companies for 50% of the overall subsidy burden for
F2011, in line with this quarter. However, we await more
clarity from the government on the downstream subsidy
sharing mechanism before we revisit our numbers.
Valuation Methodology
We base our price targets for the R&M covered stocks on
F2011e P/E multiples for global comps, which are currently
averaging 14x. We assume a 10% discount – i.e. 12.6x F2011e
earnings – largely to factor in the prevailing uncertainty on
regulations in the industry in India. We also factor in the value
of HPCL’s holdings in equity of Oil India Ltd and Mangalore
Refinery & Petrochemicals Ltd (MRPL).
Key Risks to HPCL
• A rise in crude oil prices and the marketers being forced
not to increase retail prices of petroleum products would
negatively affect earnings and thus the stock price.
• The government might announce a fresh regulatory
package for the industry, again changing the rules of the
game, which may significantly affect marketing earnings –
positively or negatively
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Petroleum
F3Q11 Helped by Refining and Government Support
Quick Comment: HPCL reported F3Q11 results;
EBITDA of Rs7.8bn fell ~68% on a sequential basis.
Reported PAT of Rs2.1bn was down ~90% on a
sequential basis. We highlight that net subsidy burden,
up ~5.7x YoY, affected the results. Strong GRMs, higher
refining throughput and government budgetary support
were the key drivers of the results.
HPCL’s net subsidy burden was Rs5.4bn in F3Q11:
Gross under-recoveries of ~Rs34.3bn rose 16% YoY and
41% sequentially. The company received ~Rs11.4bn
from upstream companies in subsidy support. The
government has approved budgetary support of
~Rs17.5bn for partial compensation of under-recoveries.
GRMs ahead of our expectation; throughput
recovered as refineries came out of shutdown:
F3Q11 GRMs of US$5.1/bbl were up 93% QoQ and
US$0.77/bbl ahead of our estimate of US$4.3/bbl.
Refining throughput rose ~35% QoQ at 4.1MT; both the
Mumbai and Vizag refineries came out of
maintenance-related shutdown.
Rising interest costs, a key negative: Interest costs
increased by ~10% on a YoY and QoQ basis as
borrowings increased. We highlight the risk of increasing
interest costs in a high oil price environment, especially
if cash from government budgetary support is delayed.
Marketing volumes remain robust, but margins were
lackluster: HPCL sold 7.1Mt of products, registering
solid growth of 17% QoQ and 6% on a YoY basis.
However, marketing margin, after accounting for
upstream and budgetary support, stood at US$1/bbl.
What does this mean for our estimates? Based on
F3Q11 results, we currently maintain our estimates. We
now expect the government to compensate downstream
companies for 50% of the overall subsidy burden for
F2011, in line with this quarter. However, we await more
clarity from the government on the downstream subsidy
sharing mechanism before we revisit our numbers.
Valuation Methodology
We base our price targets for the R&M covered stocks on
F2011e P/E multiples for global comps, which are currently
averaging 14x. We assume a 10% discount – i.e. 12.6x F2011e
earnings – largely to factor in the prevailing uncertainty on
regulations in the industry in India. We also factor in the value
of HPCL’s holdings in equity of Oil India Ltd and Mangalore
Refinery & Petrochemicals Ltd (MRPL).
Key Risks to HPCL
• A rise in crude oil prices and the marketers being forced
not to increase retail prices of petroleum products would
negatively affect earnings and thus the stock price.
• The government might announce a fresh regulatory
package for the industry, again changing the rules of the
game, which may significantly affect marketing earnings –
positively or negatively
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