Hindustan Petro. — In the red in 1Q; outlook much better from 2Q :: BofA Merrill Lynch,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Hindustan Petro. — In the red in 1Q; outlook
much better from 2Q
Company Update
1Q in the red as R&M had to bear 32% of subsidy; Buy
Hindustan Petroleum (HPCL) is in the red in 1Q FY12 with loss at Rs30.8bn. In
1Q R&M companies like HPCL had to bear 32.2% of the subsidy with the
upstream (33.3%) and government (34.5%) contributing only 68%. In the last 3
years (FY09-FY11) R&M companies had borne 0-12% of the subsidy. We are
assuming that they will bear 8% of FY12 subsidy. R&M companies also had to
bear the entire subsidy on petrol in 1Q. We expect 2Q subsidy to be 45% lower
than in 1Q due to fuel price hike and tax cuts in end 1Q FY12. There is also
unlikely to be any subsidy on petrol from 2Q. Earnings outlook is thus likely to be
much better from 2Q. HPCL, which is trading at just 1x FY12 NAV, is our top pick
among R&M companies. We retain Buy on HPCL.
Refining margin down 71% YoY & inventory gain down 32%
HPCL’s 1Q loss rose 64% YoY at Rs30.8bn as its subsidy (including petrol) net of
compensation is up Rs7bn YoY. Also, HPCL’s 1Q FY12 GRM was 71% YoY lower
at US$1.1/bbl vis-à-vis US$3.7/bbl in 1Q FY11. HPCL was also hit by 32% YoY
lower inventory gain at Rs2.2bn in 1Q FY12 vis-à-vis Rs3.2bn in 1Q FY11.
However, crude throughput at 4.0mmt was 21% YoY higher.
Outlook much better from 2Q; FY12 EPS kept unchanged
We are assuming that R&M companies will have to bear 8% of FY12 subsidy
whereas they had to bear 32% of 1Q subsidy. HPCL’s 1Q FY12 loss would have
been 75% lower at Rs7.8bn if they had to bear 8% of 1Q subsidy. Subsidy will be
much lower in 2Q due to gains from cut in subsidy in end of 1Q. Earnings outlook
from 2Q is thus likely to be better. We have kept HPCL’s FY12 EPS forecast
unchanged at Rs45.2 (1% YoY decline).