Q1FY24 Review: HPCL: Strong performance; slight miss

3 Aug 2023 , 01:21 PM

HPCL reported Rs62bn PAT in Q1FY24 (vs loss YoY), but was slightly below estimates. While the GRMs of HPCL were the lowest among OMCs (lower share of Russian crude); marketing-division performance was much stronger (super-normal margins on auto fuels). Analysts of IIFL Capital Services upgrade consolidated FY24 EPS by 68%; but holds less relevance due to volatile macro environment; they remain positive on HPCL, but prefer IOCL and BPCL over the same. 

Slight miss on Q1: 

HPCL’s Q1FY24 standalone PAT of Rs62bn was slightly below analysts of IIFL Capital Services estimates, perhaps due to marketing inventory loss (details undisclosed). The company processed 12% more oil YoY at its refineries (utilisation 106%), and reported blended GRM of US$7.4/bbl vs US$16.7/bbl YoY, which was the lowest among OMCs, attributed to lower share of Russian crude. Auto fuels led the 9% YoY growth in marketing volumes at a time when margins were above-normal; pipeline throughput was 13% up YoY. Due to 63% YoY PAT decrease in MRPL, combined with sharp fall in profits of HMEL, HPCL’s consolidated performance lagged the standalone results. 

Super-normal margins now fading: 

With the recent rise in oil price and product cracks, margins on the autofuels have fallen to Rs2-3/litre, for which analysts of IIFL Capital Services believe the OMCs would take a decision on the price cut only when the oil prices stabilise. Meanwhile, the GRMs are now up to US$12/bbl from US$4/bbl in the Q1; this does not bode well for HPCL because of its net marketing portfolio. Also, analysts of IIFL Capital Services await clarity on the mechanism of equity infusion by the govt into the OMCs and specifically HPCL (55% controlling stake by ONGC). 

Upgrade EPS: 

Analysts of IIFL Capital Services upgrade HPCL’s FY24 EPS by 68%, to reflect:  1) The strong Q1 performance 2) Continuation of normal marketing margins (lower than Q1). Given the dynamic macro environment, analysts of IIFL Capital Services FY24 forecast upgrade (based on normalised marketing margins, GRM and product demand) holds less relevance and may even see further upside. An average paise 25/ltr expansion in marketing margins leads to a ~7% swing in PAT. If Q1 margins were to hold, HPCL (consol.) would report Rs180-190 consol. EPS in FY24. However, analysts of IIFL Capital Services see margins moderating with constant growth in product sales and stable GRMs.