HPCL, BPCL shed up to 4% on lackluster June quarter performance

Shares of Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) shed up to 4 per cent to Rs 238 per share and Rs 323 per share, respectively, in Monday's intra-day trade on BSE after the companies booked huge losses in quarter that ended in June (Q1FY23). 
 

On the back of a freeze in petrol and diesel prices, the fuel retailers clocked big losses that wiped away their marketing margin. While BPCL posted a loss of Rs 6,148 crore in Q1FY23, HPCL reported its highest-ever quarterly net loss of Rs 10,196.14 crore. 
 

For HPCL, the total expenses spiked 78.6 per cent to Rs 1,35,370 crore in Q1FY23 over Q1FY22 due to higher input prices. The company reported cost of materials consumed of Rs 33,706.71 crore in Q1 FY23, steeply higher than Rs 10,732.77 crore reported in Q1FY22. READ MORE
 

BPCL's revenue from operationson. the other hand, rose to Rs 1.38 trillion, yet the state-run firm posted a negative Ebitda (ernings before, interest, tax, depreciation, and amortisation) of Rs 5,461.56 crore in Q1 versus a positive Ebitda of Rs 5,308.52 crore last year. READ MORE

During April-June, none of the fuel retailers including Indian Oil Corporation (IOC), BPCL and HPCL revised their petrol and diesel prices in line with rising costs to help the government contain inflation that topped 7 per cent. India's basket of crude oil imports during the quarter averaged $109 per barrel but the retail pump rates were aligned to about $85-86 a barrel cost.

With weaker-than-estimated marketing segment performance coupled with higher expenses, brokerage houses have lowered earnings-per-share (EPS) estimates for these oil marketing companies.

"We cut our EPS estimates for HPCL by 9/1 per cent to Rs 36.1-47.7 for FY23-24, to factor in lower marketing gross margins and higher interest cost," said analysts at HDFC Securities. 
 

Likewise, global brokerage firm Jefferies estimate weakening marketing margin to hurt operating performance for BPCL. "The persistent losses in diesel have driven us to lower our valuation multiple for BPCL to 6x fwd-EBITDA from ~7x. We cut our FY23E earnings to account for continued losses before normalisation in FY24/25E," they wrote.

That said, a hike in retail fuel prices and reimbursement of losses incurred by the government could act as positive triggers to the fuel retailer names, said analysts at Jefferies as they retained a 'buy' stance on BPCL with a target price of Rs 410 per share. 

Sharing a similar tone, brokerage firm Edelweiss Securities continued to remain bullish on positive structural growth prospects of BPCL and HPCL, expecting the gross refining margin to surge above $10 after calendar year 2024 (CY24). They retain a 'buy' stance on both BPCL and HPCL, with a 12-month target price of Rs 440 per share and Rs 328 per share, respectively.
 

So far in this calendar year, BPCL and HPCL have tumbled 13 per cent, and 14 per cent, respectively. However, frontline indices Nifty50 and the S&P BSE Sensex have remained flat during the same period.