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HPCL
• 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 FY11 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 believe capacity expansion, increase in retail sales volume
and higher refining margins would create value for investors,
going forward. Also, government policy and reforms in the
pricing of sensitive petroleum products could reduce net underrecoveries of the company. We have assumed Brent crude oil
prices of US$100 per barrel and net under-recoveries of 8.8%
for OMCs in FY13E
• HPCL is trading at 7.5x FY12E and 6.3x FY13E EPS of | 46.1 and
| 55.2. HPCL’s book value of | 439 in FY13E also offers good
risk reward ratio to long-term investors. Sustained higher crude
oil prices and adverse government policy remain risks to our
recommendation
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