Project completions to drive earnings growth for Hindustan Petroleum

HPCL's earnings growth is set to accelerate as major projects like Vizag RUF come on stream, capex intensity falls, and operating efficiencies improve despite near-term risks

Hindustan Petroleum Corporation (HPCL) reported an operating profit of Rs 7,020 crore for the third quarter of 2025-26 (Q3FY26) -- 1.9 per cent more sequentially and 17.6 per cent above year-on-year (Y-o-Y) -- a figure which was below consensus due to a one-off hit from processing 54,600 tonnes of B-80 Mumbai offshore crude oil with high contamination, leading to sub-optimal yield, impacting gross refining margins (GRM) by $1.35/barrel or bbl amounting to Rs 560 crore.

 

Adjusted operating profit of Rs 7,580 crore was better than consensus estimates.

 

The reported GRM was USD 8.85/bbl, and adjusted for above, GRM would have been $10.2/bbl. Inventory losses at $1.3/bbl were lower than estimated. Importantly, LPG losses fell to Rs 500 crore, down 58 per cent quarter-on-quarter (Q-o-Q).

 

Cumulative LPG under-recoveries reduced to Rs 13,420 crore, down 6 per cent Q-o-Q due to receiving Rs 1,320 crore subsidy. The net profit came in at Rs 4,070 crore, up 34 per cent Y-o-Y and up 6.3 per cent Q-o-Q.

 

Debt reduced to Rs 48,700 crore, down 13 per cent Q-o--Q, (excluding lease liabilities) with a drop in cost of finance to Rs 670 crore from Rs 930 crore in Q3FY25.

 

The crude throughput stood at 6.38 million tonnes, down 3 per cent Q-o-Q and 1.4 per cent less Y-o-Y, while marketing volumes was 13.24 million tonnes, up 3.7 per cent Y-o-Y and 11 per cent more Q-o-Q. The receipt of LPG compensation was expected and align with the committed Rs 30,000 crore LPG support allocation for OMCs. Another Rs 1,980 crore of LPG compensation is expected in Q4FY26.

 

The 9MFY26 Ebitda was up 99 per cent Y-o-Y at Rs 21,500 crore, with net profit up 206 per cent at Rs 12,300 crore.

 

This period saw good GRMs, strong marketing margins, and LPG losses trending lower. The capex was Rs 11,100 crore (the FY26 target is Rs 13,000- Rs  14,000 crore).

 

Under its Samriddhi programme, HPCL estimated efficiency gains of Rs 1,260 crore and of this, Rs 520 crore recurring and a one-off saving of Rs 750 crore one-off. The opex-to-turnover ratio will improve from 1.6 per cent to 1.4 per cent Y-o-Y.

 

The Vizag Residue Upgradation Facility or RUF was commissioned in January, 2026 and should add $2.5-3/bbl at refinery level from Q1FY27. The JV, HMEL, where HPCL holds 48.9 per cent stake, posted an operating profit of Rs 4,000 crore in 9MFY26 but net profit losses of Rs 18 crore due to a 40-day turnaround in Q3 which led to a loss of Rs 94 crore.

 

The Vizag RUF facility is projected to deliver incremental GRM of $2.5-3/bbl from Q1FY27. At the Rajasthan refinery, HRRL, first product flows are expected in Feb-26, while the petchem units are to be commissioned by FY28.

 

The total project capex is pegged at about Rs 79,460 crore, from an initial estimate of Rs 72,940 crore, after cost overruns due partly to rupee depreciation. The revenue streams are also dollar-denominated so internal rate of return or IRR will not be very badly affected. From 2028 onwards, HPCL will import 0.5 million metric tonnes of LNG per annum for 10 years with the contract Brent-linked at very competitive rates.

 

In Q3, 321 retail outlets were commissioned for a total of 24,572 outlets and 65 new CNG outlets were commissioned, for a total network of 2,178. Net, 248 retail outlets were “solarised”, around 94 per cent of the network now uses renewable energy.

 

The reduction of capex intensity should support reductions in net debt. If crude stays somewhere around $65/bbl, GRMs will remain strong and so may marketing margins (currently Rs 5.7/litre).

 

However, LPG under-recoveries may trend up in Q4 given rising Saudi propane prices. There are also concerns about possible adverse excise duty in the upcoming Budget and apprehensions that marketing margins may have peaked out. 

 

Despite these concerns, the OMC could deliver higher earnings growth given Vizag and Samriddhi, with some gains in Q4FY26 and larger earnings gains in FY27. HPCL could also distribute higher dividends as the capex cycle winds down while the commissioning of projects will add to revenue and earnings. The stock has seen 16 per cent correction in January, which may create an entry point for value investors.