Stock of this OMC has zoomed 54% in 5 weeks; trades at over five-year high

Shares of HPCL surged 10 per cent to Rs 378.80, its highest level since March 2018 on the BSE in Monday's intra-day trade on the back of heavy volumes.

Shares of Hindustan Petroleum Corporation (HPCL) hit over five-year high at Rs 378.90, as they surged 10 per cent on the BSE in Monday’s intra-day trade on the back of heavy volumes. As many as 13 million equity shares of HPCL, on a combined basis, had changed hands on the NSE and BSE till 10:38 AM.

The stock of state-owned oil marketing company (OMC) was quoting at its highest level since March 2018. It had hit a record high of Rs 492.80 on August 2017, data shows.

In past five weeks, the market price of HPCL has zoomed 54 per cent after the company reported returning to profitability in Q2FY24 after a boost in marketing margin improved earnings.

In Q2FY24, HPCL logged a consolidated net profit of Rs 5,827 crore, compared to a loss of Rs 2,476 crore in year ago quarter. Revenue, however, dipped 9.7 per cent year-on-year (YoY) to Rs 1.02 lakh crore. Average GRMs (gross of export duty) for Q2FY24 were $13.33 per barrel, against $8.41 per barrel during the corresponding period of previous year, HPCL said in an exchange filing.

HPCL management said the company has commissioned the fully convertible hydro cracker unit at Vizag, which will help improve distillate yields. The refinery will ramp up to 13-13.5 mmt in Q3. A 72 per cent work on Rajasthan refinery has been completed and operations are expected to commence in CY24. Capex of Rs 37,000 crore out of total cost of Rs 73,000 crore has already been incurred. GRM of $20/bbl can be expected post commissioning.

HPCL is largest vendor of ethanol in the country and has achieved 12 per cent blending. Compressed Biogas (CBG) plant in Uttar Pradesh has been commissioned and is in advanced stage of commissioning CBG retailing.

According to Reuters report, the government plans to ask state-run Oil and Natural Gas Corp (ONGC) to consider launching a rights issue to help fund green projects at refining arm HPCL, an exercise that could raise about $1.9 billion.

The government is weighing options for HPCL, including directly providing loans at preferential rates, the news agency reported quoting the sources.

The finance minister announced a plan this year to provide equity of Rs 30,000 crore ($3.6 billion) to help the big state oil refiners move towards cleaner energy.

Regardless of the prevailing uncertainty on refining and marketing margins, our analysis suggests that even in current scenario, margin mix broadly remains on a strongly upward trajectory for HPCL, analysts at ICICI Securities said in result update.

For the rest of FY24E, the brokerage firm factor in softer GRMs and stronger retail margins vs Q2 averages, while volumes improve for both refining, marketing segments led by Vizag’s ~7mt expansion fully reflecting in numbers by Q4FY24E and fuel consumption set to recover over H2 as well.

Combined with the expected commissioning of Rajasthan Refinery by FY25E (~70 per cent mechanical completion as on date) – HPCL looks set to transform the scale of the business as well as business mix for better over the next 3 years, underpinning our positive stance, analysts said in result update. The stock already achieved brokerage firm’s target price of Rs 365 per share.

Anlaysts at Prabhudas Lilladher said the refining margins and gross marketing margins (GMM) came in higher than estimates at $13.3/bbl and Rs 5.9/ltr. Going ahead, analysts build in GRMs of $6/bbl and GMM of Rs 4.5/ltr for FY25-26E.

However, on account of weakening Singapore GRMs and inability to pass on increase in fuel costs coupled with upcoming elections, the brokerage firm maintain ‘Hold’ rating on HPCL. The stock however, trading above its target price of Rs 272 per share.