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Reinforced by enhanced marketing segment performance
* EBITDA increased 55% YoY to INR46.6b (75% above our estimate) in 4QFY19, supported by an inventory gain of INR9.2b (v/s a gain of INR1.6b in 4QFY18 and a loss of INR34.7b in 3QFY19). Core GRM shrank 68% YoY (-79% QoQ) to USD2.1/bbl (22% miss), resulting in core EBITDA of INR37.5b (+31% YoY, -2% QoQ). HPCL recorded a forex gain of INR5b v/s a loss of INR0.8b in 4QFY18 and a gain of INR0.9b in 3QFY19. PAT was up 70% YoY at INR29.7b in the quarter.
* Reported GRM was at USD4.5/bbl (v/s USD7.1 in 4QFY18 and USD3.7 in 3QFY19). Refining throughput was flat YoY/QoQ at 4.6mmt.
* Marketing sales volume grew 7% YoY (4%QoQ) to 10.1mmt in 4QFY19. Implied gross marketing margin (incl. inventory) stood at INR5.9/lit (v/s INR4.4 in 4QFY18 and INR3.3 in 3QFY19).
* Adj. EBITDA was at INR107.1b (+9% YoY) in FY19 v/s INR98.5b in FY18. PAT fell ~5% YoY to INR60.3b in the year due to higher interest/depreciation cost.
* Throughput for the year stood at 18.4mmt v/s 18.3mmt in FY18, with core GRM lower at USD4.5/bbl v/s USD6.7/bbl in FY18. Marketing segment performed well, with sales volumes (incl. exports) up 3% YoY to 38.7mmt (v/s 36.9mmt in FY18) and margins expanding 39% YoY to INR4.4/lit (v/s INR3.6/lit in FY18).
Valuation and view
* Concerns around the ability of the OMCs to take price hikes amid elections are overdone and clarity over marketing margins would benefit HPCL the most.
* However, due to high capex (Vizag expansion and Rajasthan refinery-cumpetrochem complex), free cash flow is likely to remain negative in FY20, in our view.
* HPCL is trading at 5.7x consol. FY20E EPS of INR51.3 and 1.3x FY20E PBV. We value HPCL at 1.2x FY21 PBV. Reiterate Neutral with a TP of INR309.
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