HPCL share price jumps 24% in nine days; check out key reasons behind the rally
- HPCL shares rise for ninth straight day, up 24% as OMC companies benefit from decline in crude oil prices. HPCL reports Q2 net profit of ₹5,826.96 crore due to low crude prices and higher gross refining margin.
Hindustan Petroleum share price surged 7.7% on Wednesday's session in response to positive Q2 results from the oil marketing company (OMC) and after several domestic brokerages maintained or raised their target prices for the stock and sees potential upside. Now, for the ninth straight day, the HPCL shares has surged, rising by 24%. Hindustan Petroleum Corporation Limited share price opened at intraday low of ₹281.50 apiece on BSE today.
A further contributing element to the rise of OMC companies is the decline in crude oil prices. According to a report by Reuters, oil prices plummeted more than 4% on Tuesday to their lowest levels since late July, as he dollar strengthened and concerns about tight markets subsided due to mixed Chinese economic data and increased OPEC exports.
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For the first time since the attack on Israel on October 7 by Hamas Islamists, Brent crude prices closed below $84 per barrel. U.S. West Texas Intermediate oil futures concluded at $77.37 a barrel, down $3.45, or 4.3%, but the global benchmark finished at $81.61 a barrel, down $3.57, or 4.2%.
On Monday, Hindustan Petroleum Corporation Ltd (HPCL) reported a consolidated net profit of ₹5,826.96 crore for the July-September quarter on the back of low crude prices and higher gross refining margin (GRM). During the same period of the last fiscal, the oil marketing company had reported a net loss of ₹2,475.69 crore.
HPCL's revenue during the period under review, however, declined 10.15% to ₹1 lakh crore. “Average GRMs (gross of export duty) for the period Jul-Sep 2023 were $13.33 per barrel (US$ 8.41 per barrel during the corresponding period of previous year)," said a company statement.
According to Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities, lower crude prices give good room for better earnings visibility for OMCs.
In Q2 HPCL reported a good set of numbers returning to profitability along with increased margins. Average GRMs were also higher than previous quarters which set the fire in the counter. The stock rallied from 240 levels to 298 levels in the last few days. Technically, the stock looks like it would touch 308-310 levels in near term. Weekly close above 308 would be good to stock post that we can see a rally up to 320-325 in the medium term.
“OMC's are in strong buzz and have given spectacular move in last few sessions, especially this stock has gained significant traction up almost 16. We expect this run to continue in near term towards 320 with 280 as support,” added Rajesh Bhosale - Equity Technical and Derivative Analyst, Angel One.
Let's take a look at brokerages analysis and outlook post HPCL's Q2 Results:
Nuvama Institutional Equities
According to the brokerage's analysis, HPCL reported Q2FY24 EBITDA of ₹8,300 crore, which was 45% more than the consensus estimate. This was driven by stronger throughput and robust refining on strong GRMs, which were offset by a lower retail margin. GRMs increased to USD13/bbl by 59% YoY and 79% QoQ. GRMs will show weakness in the near future as we prepare for a prolonged recession. The Vizag refinery was enlarged in Q2 to 11 MMT from 8 MMT. Additionally, Vizag bottom upgradation will raise GRMs by an additional USD 3.4 billion. High domestic sales offset for low retail margins.
“HPCL is more countercyclical to crude versus IOCL/BPCL, given highest exposure to fuel retailing. Any dip in retail margin shall affect HPCL more. We keep estimates unchanged. Furthermore, we maintain target price at ₹310 and retain ‘HOLD’,” the brokerage said.
Motilal Oswal Financial Services
According to the brokerage, HPCL exceeded the brokerage's 2QFY24 EBITDA forecast because of a higher-than-anticipated marketing margin of ₹5.9/lit. It was somewhat offset by GRM coming in below expectations at USD13.3/bbl. At 5.8 mmt (up 28% YoY), refinery throughput was consistent. Refining margins may suffer in the upcoming quarter as Singapore's GRM, which was USD9.8/bbl in 2QFY24, has already dropped to about USD3.9/bbl in 3QFY24.
The commissioning of a new hydrogen generation unit, a sulphur recovery unit, and a 3.05mmtpa will help the Vizag refinery, which ran at 11mmtpa in 2QFY24, function at 13.5–13.7mmtpa in 3QFY24.
“Fully Convertible Hydrocracking Unit.In the marketing segment, sales volumes were in line with est. at 10.7mmt. OMCs are estimated to be generating gross marketing margin of ₹8.4/liter on petrol while making a loss of ₹3.4/lit on diesel in 3QFY24 so far. Among OMCs, HPCL has the highest leverage to marketing. Owing to its outperformance in 2QFY24, we raise our FY24E/FY25E EBITDA by 7%/11%. We value the stock at 0.8x FY25E P/BV and maintain our Neutral rating with a target price of ₹315, and see 13% potential upside from market price of ₹279,” the brokerage said.
JM Financial
“HPCL’s standalone 2QFY24 EBITDA was significantly higher at ₹8,220 crore vs. JMFe/consensus of ₹6,140 crore/ ₹5,700 crore despite reported GRM being slightly lower at USD 13.3/bbl (vs. JMFe of USD 14.7/bbl); hence, the beat is driven by significantly higher marketing margin as was witnessed in the case of IOCL and BPCL as well. Our calculations suggest HPCL’s marketing segment EBITDA was significantly higher at ₹4,900 crore in 2QFY24 vs. JMFe of INR 23bn (vs. ₹8,000 crore in 1QFY24). We maintain BUY (revised target price of ₹280) on valuations (trading at 0.75x FY25 P/B); however, volatile crude price poses a risk to marketing segment earnings as the country enters a critical election phase in the next 6 months,” the brokerage said.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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