HPCL reported net profit of Rs50 billion in 4Q FY3/09 (vs loss of Rs241m in 4Q FY3/08), which was 16% higher than our expectations.
The company earned Rs33 billion from the marketing business as they were fully compensated for the under recovery on sale of petroleum products in the first half of the year.
Sales volume increased 4.6% y-o-y to 6.83MMT in 4Q FY3/09. The refinery throughput declined by 2.6% y-o-y to 4.17MMT.
Sales were hit by 7-18% cut in petrol, diesel and LPG prices in two rounds in December 2008 and February 2009, resulting in 20% YoY decline in net sales.
Petrol and diesel retail margins remained positive during 4Q FY3/09 as the price cuts were more than offset by 55% y-o-y fall in the global crude prices.
We estimate retail margins on petrol and diesel to have averaged Rs1.7/litre and Rs2.9/litre, respectively. LPG and kerosene margins improved but remained negative.
HPCL reported a robust GRM of US$9.52/bbl in 4Q FY3/09 (vs +US$7.43/bbl in 4Q FY3/08 and -US$3.12/bbl in 3QFY3/09) in line with global industry trends and helped by inventory gains of Rs540 million.
Upstream companies – mainly ONGC shouldered the small burden by providing a discount of Rs5.5 billion in 4Q FY3/09 (-73% of Rs21bn in 4Q FY3/08) on purchases of crude oil, LPG and kerosene. The provision for oil bonds has been 41% lower y-o-y, at Rs20 billion.
HPCL reported a modest consolidated PAT of Rs7.6 billion, which was 44% lower than last year.
However, adjusting for inventory losses of Rs17.5bn and foreign exchange gain of Rs2.0bn, profits were Rs17.7bn or 34% higher YoY.
We have raised our target price by 13% to Rs417/share as we upgrade the value of assets in line with peers and HPCL’s investments in MRPL at current market prices. Maintain OUTPERFORM rating.