Recovery in consumption has been faster than expectations – HPCL

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 15,115 (+1.3%). Top gainers in NIFTY50 were M&M (+7.3%), Tata Motors (+6.4%), and Hindalco (+6.1%). The top losers were Britannia (-1.8%), HUL (-1.6%), and Kotak bank (-1.4%). Top sectoral gainers were METAL (+3.2%), AUTO (+3.1%), and IT (+2.3%) and sectoral losers were PSU BANKS (-1.0%) and FMCG (-0.5%).

Excerpts of an interview with Mr MK Surana, CMD – HPCL with CNBC -TV18 dated 5^th February 2021:

• The overall recovery in consumption has been faster than expectations. The subsidy receivables from the government are reducing.
• HPCL’s 3QFY21 came in weaker than consensus estimates due to a miss on refining margins but marketing margins came in line with expectations.
• The Singapore margins which were in the negative territory have started coming in the positive one. The diesel and motor spirit (MS) cracks which were at $2-3 per barrel have started looking up. The recovery is better and quicker than many people were expecting.
• The cracks have been on the lower side for some time now. The petrol and diesel cracks have been in the range of $ 2-3 per barrel which is normally not the situation. These are improving now, with diesel cracks ranging up to ~ $ 4-5 per barrel and for petrol as well. Despite this, the refining cracks remain low which hits the refinery margin to some extent.
• He believes that it is too early to talk about the monetization of pipelines.
• HPCL does not have a gas pipeline, HPCL has a petroleum product pipeline. They will see how they can create better value than what they had already been able to create and they will review the options.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of HPCL was ₹ 230/- as of 8-February-2021.  It traded at 4x/ 6x/ 5x the consensus earnings estimate of ₹ 55.1/ 41.3/46.8 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 289/- which trades at 6x the earnings estimate for FY23E of ₹ 46.8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”