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High sensitivity to crude oil prices…
Hindustan Petroleum Corporation (HPCL), a Fortune 500 company, is
engaged in refining and marketing of petroleum products in India. It
operates two refineries with 16.3 mmtpa capacity in FY11E and has
~18% share in marketing of petroleum products. HPCL, in a joint
venture with Mittal Energy, is setting up a 9 mmtpa refinery at
Bhatinda, which would be operational in FY12E. We expect HPCL to
report CAGR of 8.2% and 9.8% in revenues and net profits, respectively,
over FY11E-13E to | 1,56,022.8 crore and | 1,142.1 crore. We
recommend a BUY rating on the stock with a price target of | 372.
Capacity expansion, more value-added products to drive refining growth
HPCL’s refining capacity increased from 14.8 mmtpa in FY10 to 16.3
mmtpa in FY11E. Upgrading of refineries will produce more value-added
products. Also, the greenfield refinery at Bhatinda with a capacity of 9.0
mmtpa in JV with Mittal Energy would drive refining growth over the next
two years. We expect standalone crude oil throughput to increase from
14.7 mmtpa in FY11E to 18.2 mmtpa in FY13E and refining margins to
improve from US$4.5 per bbl in FY11E to US$5.5 per bbl in FY13E.
Retail sales volume to increase at 6.9% CAGR over FY11-13E
We expect HPCL’s retail sales volumes to increase from 26.8 mmtpa in
FY11E to 30.6 mmtpa in FY13E at 6.9% CAGR over FY11-13E. HPCL’s
earnings are more sensitive to crude oil prices than its peers as the
marketing business has a higher share. HPCL’s EPS would decrease from
| 33.7 (Brent oil prices: US$85 per bbl, government share: 50%) to | 20.9
(government share: 54.5%) in FY13E if crude oil prices sustain at US$100
per bbl. However, its EPS would increase to | 70 per share in FY13E if
crude oil prices decline to US$70 per bbl.
Valuation
We believe capacity expansion, increase in retail sales volume and higher
refining margins would create value for investors, going forward. HPCL is
trading at 10.5x FY12E and 10x FY13E EPS of | 32.2 and | 33.7,
respectively. We are initiating coverage on the stock with BUY rating and
price target of | 372 (valuation based on average of P/BV multiple: | 374
per share and P/E multiple: | 370 per share).
Investment Rationale
Hindustan Petroleum Corporation (HPCL), a Fortune 500 company, is
engaged in refining and marketing of petroleum products in India. It
operates two refineries with capacity of 16.3 mmtpa capacity in FY11E.
HPCL, in a joint venture with Mittal Energy is setting up a 9 mmtpa
refinery at Bhatinda, which would be operational in FY12E. We expect
standalone crude oil throughput to increase from 14.7 mmtpa in FY11E
to 18.2 mmtpa in FY13E and refining margins to improve from US$4.5
per bbl in FY11E to US$5.5 per bbl in FY13E. It has ~18% share in
marketing of petroleum products. We expect HPCL’s retail sales
volumes to increase from 26.8 mmtpa in FY11E to 30.6 mmtpa in FY13E
at 6.9% CAGR over FY11-13E. We expect HPCL to report CAGR of 8.2%
and 9.8% in revenues and net profits, respectively, over FY11E-13E to |
1,56,022.8 crore and | 1,142.1 crore. We recommend a BUY rating on the
stock with a price target of | 372.
Capacity expansion, more value-added products to drive refining growth
HPCL’s refining capacity increased from 14.8 mmtpa in FY10 to 16.3
mmtpa in FY11E. Upgrading of refineries will produce more value added
products while the greenfield refinery at Bhatinda with a capacity of 9.0
mmtpa in JV with Mittal Energy would drive refining growth over the next
two years. The refinery was built at a capital expenditure of | 18919 crore.
It will produce petroleum products in compliance with Euro IV emission
norms. HPCL is also upgrading its Mumbai and Vishakhapatnam refineries
to enhance the production of value-added products like LPG, MS and
HSD. This project would be commissioned at a cost of about | 7000
crore. We expect standalone crude oil throughput to increase from 14.7
mmtpa in FY11E to 18.2 mmtpa in FY13E and refining margins to improve
from US$4.5 per bbl in FY11E to US$5.5 per bbl in FY13E.
Valuation
We believe capacity expansion, increase in retail sales volume and higher
refining margins would create value for investors, going forward. HPCL is
trading at 10.5x FY12E and 10x FY13E EPS of | 32.2 and | 33.7,
respectively. We are initiating coverage on the stock with a BUY rating
and a price target of | 372 (valuation based on average of P/BV multiple: |
374 per share and P/E multiple: | 370 per share).
HPCL’s EPS would decrease from | 33.7 (Brent oil prices: US$85 per bbl,
government share: 50%) to | 20.9 (government share: 54.5%) in FY13E if
crude oil prices sustain at US$100 per bbl. However, its EPS would
increase to | 70 per share in FY13E if crude oil prices decline to US$70
per bbl.
Exhibit 115: Valuation table
Valuation based on Price / BV Multiple
Adjusted Book Value for FY13E (|Crore) 12277.1
Adjusted number of shares (Crore) 33.9
Adjusted Book Value per share (|) 362.1
Add: Listed investments (25% discount to CMP) 53.3
Book Value of core business (| per share) 415.4
Multiple 0.90
Fair Value per share (|) 374
Valuation based on P / E multiple
Profit after tax for FY13E (| Crore) 1142.1
Less: Other Income adjusted for tax (| Crore) 227.2
Adjusted profit after tax for FY13E (| Crore) 914.9
Number of shares (Crore) 33.9
Adjusted EPS for FY13E (|) 27.0
Multiple 10.0
Fair value per share without investments (|) 269.9
Add: Value of Investments (| per share)
Listed investments (25% discount to CMP) 53.3
HPCL - Mittal Energy 36.2
Other Investments 10.9
Fair value per share (|) 370
Weighted Target Price (| per share) 372
Source: ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High sensitivity to crude oil prices…
Hindustan Petroleum Corporation (HPCL), a Fortune 500 company, is
engaged in refining and marketing of petroleum products in India. It
operates two refineries with 16.3 mmtpa capacity in FY11E and has
~18% share in marketing of petroleum products. HPCL, in a joint
venture with Mittal Energy, is setting up a 9 mmtpa refinery at
Bhatinda, which would be operational in FY12E. We expect HPCL to
report CAGR of 8.2% and 9.8% in revenues and net profits, respectively,
over FY11E-13E to | 1,56,022.8 crore and | 1,142.1 crore. We
recommend a BUY rating on the stock with a price target of | 372.
Capacity expansion, more value-added products to drive refining growth
HPCL’s refining capacity increased from 14.8 mmtpa in FY10 to 16.3
mmtpa in FY11E. Upgrading of refineries will produce more value-added
products. Also, the greenfield refinery at Bhatinda with a capacity of 9.0
mmtpa in JV with Mittal Energy would drive refining growth over the next
two years. We expect standalone crude oil throughput to increase from
14.7 mmtpa in FY11E to 18.2 mmtpa in FY13E and refining margins to
improve from US$4.5 per bbl in FY11E to US$5.5 per bbl in FY13E.
Retail sales volume to increase at 6.9% CAGR over FY11-13E
We expect HPCL’s retail sales volumes to increase from 26.8 mmtpa in
FY11E to 30.6 mmtpa in FY13E at 6.9% CAGR over FY11-13E. HPCL’s
earnings are more sensitive to crude oil prices than its peers as the
marketing business has a higher share. HPCL’s EPS would decrease from
| 33.7 (Brent oil prices: US$85 per bbl, government share: 50%) to | 20.9
(government share: 54.5%) in FY13E if crude oil prices sustain at US$100
per bbl. However, its EPS would increase to | 70 per share in FY13E if
crude oil prices decline to US$70 per bbl.
Valuation
We believe capacity expansion, increase in retail sales volume and higher
refining margins would create value for investors, going forward. HPCL is
trading at 10.5x FY12E and 10x FY13E EPS of | 32.2 and | 33.7,
respectively. We are initiating coverage on the stock with BUY rating and
price target of | 372 (valuation based on average of P/BV multiple: | 374
per share and P/E multiple: | 370 per share).
Investment Rationale
Hindustan Petroleum Corporation (HPCL), a Fortune 500 company, is
engaged in refining and marketing of petroleum products in India. It
operates two refineries with capacity of 16.3 mmtpa capacity in FY11E.
HPCL, in a joint venture with Mittal Energy is setting up a 9 mmtpa
refinery at Bhatinda, which would be operational in FY12E. We expect
standalone crude oil throughput to increase from 14.7 mmtpa in FY11E
to 18.2 mmtpa in FY13E and refining margins to improve from US$4.5
per bbl in FY11E to US$5.5 per bbl in FY13E. It has ~18% share in
marketing of petroleum products. We expect HPCL’s retail sales
volumes to increase from 26.8 mmtpa in FY11E to 30.6 mmtpa in FY13E
at 6.9% CAGR over FY11-13E. We expect HPCL to report CAGR of 8.2%
and 9.8% in revenues and net profits, respectively, over FY11E-13E to |
1,56,022.8 crore and | 1,142.1 crore. We recommend a BUY rating on the
stock with a price target of | 372.
Capacity expansion, more value-added products to drive refining growth
HPCL’s refining capacity increased from 14.8 mmtpa in FY10 to 16.3
mmtpa in FY11E. Upgrading of refineries will produce more value added
products while the greenfield refinery at Bhatinda with a capacity of 9.0
mmtpa in JV with Mittal Energy would drive refining growth over the next
two years. The refinery was built at a capital expenditure of | 18919 crore.
It will produce petroleum products in compliance with Euro IV emission
norms. HPCL is also upgrading its Mumbai and Vishakhapatnam refineries
to enhance the production of value-added products like LPG, MS and
HSD. This project would be commissioned at a cost of about | 7000
crore. We expect standalone crude oil throughput to increase from 14.7
mmtpa in FY11E to 18.2 mmtpa in FY13E and refining margins to improve
from US$4.5 per bbl in FY11E to US$5.5 per bbl in FY13E.
Valuation
We believe capacity expansion, increase in retail sales volume and higher
refining margins would create value for investors, going forward. HPCL is
trading at 10.5x FY12E and 10x FY13E EPS of | 32.2 and | 33.7,
respectively. We are initiating coverage on the stock with a BUY rating
and a price target of | 372 (valuation based on average of P/BV multiple: |
374 per share and P/E multiple: | 370 per share).
HPCL’s EPS would decrease from | 33.7 (Brent oil prices: US$85 per bbl,
government share: 50%) to | 20.9 (government share: 54.5%) in FY13E if
crude oil prices sustain at US$100 per bbl. However, its EPS would
increase to | 70 per share in FY13E if crude oil prices decline to US$70
per bbl.
Exhibit 115: Valuation table
Valuation based on Price / BV Multiple
Adjusted Book Value for FY13E (|Crore) 12277.1
Adjusted number of shares (Crore) 33.9
Adjusted Book Value per share (|) 362.1
Add: Listed investments (25% discount to CMP) 53.3
Book Value of core business (| per share) 415.4
Multiple 0.90
Fair Value per share (|) 374
Valuation based on P / E multiple
Profit after tax for FY13E (| Crore) 1142.1
Less: Other Income adjusted for tax (| Crore) 227.2
Adjusted profit after tax for FY13E (| Crore) 914.9
Number of shares (Crore) 33.9
Adjusted EPS for FY13E (|) 27.0
Multiple 10.0
Fair value per share without investments (|) 269.9
Add: Value of Investments (| per share)
Listed investments (25% discount to CMP) 53.3
HPCL - Mittal Energy 36.2
Other Investments 10.9
Fair value per share (|) 370
Weighted Target Price (| per share) 372
Source: ICICIdirect.com Research
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