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Hindustan Petroleum (HPCL)
Energy
Weak results. HPCL reported 2QFY12 net loss at `33.6 bn versus net loss of `30.8 bn
in 1QFY12; our estimate was net loss of `34.5 bn. The qoq decline despite (1) adventitious
gains of `8.7 bn and (2) higher refining margins (+US$0.8/bbl qoq) reflects likely large
foreign exchange loss of ~`10 bn. We maintain our ADD rating on HPCL given 15%
potential upside to our revised target price of `385 (`430 previously).
Results marred by forex losses; adventitious gains save the day
HPCL reported net income of –`33.6 bn in 2QFY12 versus net income of –`30.8 bn in 1QFY12
and net income of `20.9 bn in 2QFY11. We note that HPCL has borne `31.2 bn as net underrecovery
in 2QFY12 versus under-recovery of `30.6 bn in 1QFY12 and over-recovery of `12.2 bn in
2QFY11. The company reported EBITDA at –`28.7 bn versus –`25.7 bn in 1QFY12 and `24.8 bn in
2QFY11. The company has reported foreign exchange loss of ~`10 bn in 1HFY12 versus foreign
exchange gain of `0.3 bn in 1QFY12. HPCL surprisingly reported `8.7 bn of adventitious gains for
its marketing segment in 2QFY12 versus `2.2 bn in 1QFY12 and `3 bn in 2QFY11.
Refining margins and crude throughput increase qoq; sales volumes increase yoy
HPCL reported refining margin of US$1.9/bbl in 2QFY12 versus US$1.1/bbl in 1QFY12 and
US$2.7/bbl in 2QFY11. 2QFY12 refinery margin was impacted by adventitious/inventory loss of
~US$0.25/bbl versus adventitious/inventory loss of ~US$1.25/bbl in 1QFY12. HPCL’s two refineries
achieved crude throughput of 4.2 mn tons (+5.5% qoq and +37.8% yoy) in 2QFY12. Sales
volumes (domestic) increased by 7.8% yoy to 6.3 mn tons in 2QFY12.
Potential weakness in crude oil and/or revision in retail prices could drive near-term performance
We note that the near-term performance of the downstream companies will depend on
(1) movement of crude oil prices, (2) exchange rate and (3) government’s action/ inaction on the
pricing of regulated products. We highlight that the level of under-recoveries is nearing the prederegulation
levels in June 2011 (see Exhibit 2). The current valuation for downstream stock
reflects concerns on the governments’ ability to manage the subsidy burden in a rational manner
given its fiscal constraints. A potential decline in crude oil prices led by the ongoing Euro zone
crisis could provide some comfort and boost stock performance in the near term.
Revised earnings; maintain ADD with a revised target price of `385
We have cut our FY2012-14E EPS to `14 (-31.1%), `28.7 (-15.2%) and `30.8 (-6.6%) to reflect
(1) lower refining margins, (2) revised exchange rate assumptions, (3) 2QFY12 results and (4) other
minor changes. We maintain our ADD with a revised target price of `385 (`430 previously) based
on 9X FY2013E adjusted EPS of `26 plus value of investments. Key downside risk stems from
higher-than-expected net under-recoveries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hindustan Petroleum (HPCL)
Energy
Weak results. HPCL reported 2QFY12 net loss at `33.6 bn versus net loss of `30.8 bn
in 1QFY12; our estimate was net loss of `34.5 bn. The qoq decline despite (1) adventitious
gains of `8.7 bn and (2) higher refining margins (+US$0.8/bbl qoq) reflects likely large
foreign exchange loss of ~`10 bn. We maintain our ADD rating on HPCL given 15%
potential upside to our revised target price of `385 (`430 previously).
Results marred by forex losses; adventitious gains save the day
HPCL reported net income of –`33.6 bn in 2QFY12 versus net income of –`30.8 bn in 1QFY12
and net income of `20.9 bn in 2QFY11. We note that HPCL has borne `31.2 bn as net underrecovery
in 2QFY12 versus under-recovery of `30.6 bn in 1QFY12 and over-recovery of `12.2 bn in
2QFY11. The company reported EBITDA at –`28.7 bn versus –`25.7 bn in 1QFY12 and `24.8 bn in
2QFY11. The company has reported foreign exchange loss of ~`10 bn in 1HFY12 versus foreign
exchange gain of `0.3 bn in 1QFY12. HPCL surprisingly reported `8.7 bn of adventitious gains for
its marketing segment in 2QFY12 versus `2.2 bn in 1QFY12 and `3 bn in 2QFY11.
Refining margins and crude throughput increase qoq; sales volumes increase yoy
HPCL reported refining margin of US$1.9/bbl in 2QFY12 versus US$1.1/bbl in 1QFY12 and
US$2.7/bbl in 2QFY11. 2QFY12 refinery margin was impacted by adventitious/inventory loss of
~US$0.25/bbl versus adventitious/inventory loss of ~US$1.25/bbl in 1QFY12. HPCL’s two refineries
achieved crude throughput of 4.2 mn tons (+5.5% qoq and +37.8% yoy) in 2QFY12. Sales
volumes (domestic) increased by 7.8% yoy to 6.3 mn tons in 2QFY12.
Potential weakness in crude oil and/or revision in retail prices could drive near-term performance
We note that the near-term performance of the downstream companies will depend on
(1) movement of crude oil prices, (2) exchange rate and (3) government’s action/ inaction on the
pricing of regulated products. We highlight that the level of under-recoveries is nearing the prederegulation
levels in June 2011 (see Exhibit 2). The current valuation for downstream stock
reflects concerns on the governments’ ability to manage the subsidy burden in a rational manner
given its fiscal constraints. A potential decline in crude oil prices led by the ongoing Euro zone
crisis could provide some comfort and boost stock performance in the near term.
Revised earnings; maintain ADD with a revised target price of `385
We have cut our FY2012-14E EPS to `14 (-31.1%), `28.7 (-15.2%) and `30.8 (-6.6%) to reflect
(1) lower refining margins, (2) revised exchange rate assumptions, (3) 2QFY12 results and (4) other
minor changes. We maintain our ADD with a revised target price of `385 (`430 previously) based
on 9X FY2013E adjusted EPS of `26 plus value of investments. Key downside risk stems from
higher-than-expected net under-recoveries.
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