Hindustan Petroleum Corporation

(HPCL IN)
Rating: BUY | CMP: Rs294 | TP: Rs326

May 20, 2019 Higher marketing profitability drives earnings

Q4FY19 Result Update Quick Pointers:

 Change in Estimates |  Target |  Reco  Marketing margins compensate for weak GRMs.

Change in Estimates
 Easing political uncertainty post Central elections and benign crude oil prices
Current Previous
FY20E FY21E FY20E FY21E
from rising US supplies are likely to support stable earnings growth for the
Rating BUY BUY OMCs
Target Price 326 326
Sales (Rs. m) 3,234,063 3,526,413 3,234,063 3,526,413
% Chng. - -
We maintain our FY20/21E earnings. During Q4, core performance for HPCL
EBITDA (Rs. m) 129,769 138,198 129,769 138,198 improved led by better marketing performance. Benign crude price outlook
% Chng. - -
EPS (Rs.) 32.6 35.9 32.6 35.9 given rising US supplies and weak global macros is likely to keep marketing
% Chng. - - margins buoyant. Oil prices likely to remain benign, as rising US supplies
cushions the impact of supply disruptions of over 3mbpd. Weak global
Key Financials macros and US-China trade dispute will prevent crude prices flare-up. Also,
FY18 FY19 FY20E FY21E completion of Central elections will ease policy overhang. Maintain BUY.
Sales (Rs. bn) 2,195 2,959 3,234 3,526
EBITDA (Rs. b)n 107 142 130 138
Margin (%) 4.9 4.8 4.0 3.9 Operationally strong results: HPCL reported strong Q4FY19 results with EBITDA
PAT (Rs. bn) 72 63 50 55
of Rs51.6bn (PLe Rs53.9bn; +77%YoY) and PAT of Rs29.6bn (PLe Rs31.7bn;
EPS (Rs.) 47.4 41.0 32.6 35.9
Gr. (%) (41.6) (13.4) (20.4) 10.0 +70%YoY) led by higher than expected marketing earnings despite lower inventory
DPS (Rs.) - - - - gains. For Q4, total inventory gains were at Rs9.2bn (PLe Rs22.5bn). Foreign
Yield (%) - - - -
RoE (%) 31.0 22.4 15.4 14.9 exchange gains for Q4 were at Rs2.5bn. The core EBIDTA for the quarter, adjusted
RoCE (%) 18.5 16.5 10.1 9.5 for forex and inventory gains were at Rs40.0bn (Rs38.3bn in Q3). For FY19, core
EV/Sales (x) 0.3 0.3 0.3 0.3
standalone EBIDTA were at Rs114bn vs Rs94bn in FY18.
EV/EBITDA (x) 5.5 6.4 7.8 7.6
PE (x) 6.2 7.2 9.0 8.2
P/BV (x) 1.8 1.5 1.3 1.2 Marketing profitability improved sequentially: HPCL’s marketing EBIDTA was
at Rs52.2bn (Rs1.0bn in Q3) when state elections led to lower margins. HPCL’s
Key Data HPCL.BO | HPCL IN marketing volumes lagged industry run rate for HSD (2.9% YoY vs 4.0% for
52-W High / Low Rs.325 / Rs.163 industry), and MS (8.5% YoY against industry rate of 9.0%YoY) respectively.
Sensex / Nifty 39,353 / 11,828
Market Cap Rs.447bn/ $ 6,418m
Shares Outstanding 1,524m
Weak refining margins: HPCL’s refining margins for Q4FY19 came in at
3M Avg. Daily Value Rs.3708.67m
US$4.51/bbl (Q3FY19 at US$3.72bbl) and included inventory gains of US$2.4/bbl.
For FY19, refining margins were at US$5.01/bbl vs US$7.4/bbl due to weak
Shareholding Pattern (%)
gasoline spreads.
Promoter’s -
Foreign 18.60
Domestic Institution 17.09
Public & Others 64.31 Global GRM’s are likely to remain under pressure, as new refining capacity addition
Promoter Pledge (Rs bn) - of ~ 2mbpd is higher than demand expectation of 1.1mbpd. However, OMCs with
~40% diesel product slate remain well placed to benefit from IMO2020 regulation
Stock Performance (%) which will increase diesel demand by >1mbpd if they are implemented immediately.
1M 6M 12M For Q4, refining throughput was at 4.6MTPA (4.56MTPA in Q3) while for FY19
Absolute 10.1 20.7 (5.9)
Relative 9.5 8.8 (16.7) volumes were at 18.44MTPA vs 18.28MTPA in FY18.

Avishek Datta
avishekdatta@plindia.com | 91-22-66322254

May 20, 2019 1

 Hindustan Petroleum Corporation

Q4FY19 Result Overview (Rs mn)

Y/e March Q4FY19 Q4FY18 YoY gr. (%) Q3FY19 FY19 FY18 YoY gr. (%)
Net sales 731,500 666,410 9.8 771,824 2,969,284 2,440,279 21.7
Inc/dec in stock (34,177) (9,399) NA 50,342 (21,665) 8,045 NA
Raw material cons 157,649 148,984 5.8 183,720 696,098 511,863 36.0
Staff cost 7,310 7,821 (6.5) 7,830 29,385 28,585 2.8
Purchases 462,742 397,957 16.3 448,577 1,804,740 1,424,557 26.7
Duties 52,119 58,309 (10.6) 50,706 217,317 247,525 (12.2)
Other expenditure 34,195 33,512 2.0 21,018 128,990 113,556 13.6
Exp (679,838) (637,184) NA (762,192) (2,854,864) (2,334,132) NA
Operating profit 51,662 29,226 76.8 9,632 114,420 106,147 7.8
Interest (1,872) (1,776) NA (1,472) (7,260) (5,667) NA
Depreciation (8,285) (7,254) NA (7,393) (30,126) (27,528) NA
Other income 5,225 3,427 52.5 3,937 16,352 19,067 (14.2)
Profit before tax 46,731 23,624 97.8 4,704 93,387 92,019 1.5
Current tax (14,305) (6,145) NA (2,037) (30,182) (28,449) NA
Profit after current tax 32,426 17,479 85.5 2,666 63,204 63,571 (0.6)
Source: Company, PL

HPCL internals
Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19
EBIDTA 31,585 29,226 31,907 21,220 9,632 51,662
Adj for forex 2,750 (840) (5,380) (8,870) 5,970 2,480
Adj for inventory 14,770 1,570 19,050 12,760 (34,650) 9,160
Core EBIDTA 14,065 28,496 18,237 17,330 38,312 40,022
Marketing (1,049) 17,415 6,822 10,476 34,161 34,030
Refining 15,114 11,081 11,415 6,853 4,151 5,992

GRMs ($/BBL) 9.04 7.07 7.15 4.81 3.72 4.51

Thruput (MTPA) 4.52 4.63 4.52 4.76 4.56 4.60
Source: Company, PL

May 20, 2019 2

 Hindustan Petroleum Corporation

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY18 FY19 FY20E FY21E Y/e Mar FY18 FY19 FY20E FY21E

Net Revenues 2,195,096 2,958,571 3,234,063 3,526,413 Non-Current Assets

YoY gr. (%) 17.1 34.8 9.3 9.0
Cost of Goods Sold 1,944,872 2,656,389 2,929,799 3,200,263 Gross Block 463,592 757,493 838,993 1,205,493
Gross Profit 250,224 302,182 304,265 326,151 Tangibles 463,592 757,493 838,993 1,205,493
Margin (%) 11.4 10.2 9.4 9.2 Intangibles - - - -
Employee Cost 28,926 30,586 32,727 35,018
Other Expenses 114,169 130,041 141,768 152,935 Acc: Dep / Amortization 81,335 169,954 211,503 254,767
Tangibles 81,335 169,954 211,503 254,767
EBITDA 107,130 141,555 129,769 138,198 Intangibles - - - -
YoY gr. (%) (0.9) 32.1 (8.3) 6.5
Margin (%) 4.9 4.8 4.0 3.9 Net fixed assets 382,257 587,539 627,490 950,726
Tangibles 382,257 587,539 627,490 950,726
Depreciation and Amortization 28,344 33,992 36,950 38,664 Intangibles - - - -

EBIT 78,786 107,563 92,820 99,533 Capital Work In Progress 39,890 178,729 278,729 53,729
Margin (%) 3.6 3.6 2.9 2.8 Goodwill 4,909 - - -
Non-Current Investments 83,275 104,308 104,308 104,308
Net Interest 6,179 10,284 13,298 14,210 Net Deferred tax assets (68,048) - - -
Other Income 15,279 14,910 16,576 18,493 Other Non-Current Assets 14,977 - - -

Profit Before Tax 87,886 112,189 96,098 103,816 Current Assets

Margin (%) 4.0 3.8 3.0 2.9 Investments 49,994 - - -
Inventories 186,122 181,486 201,441 218,236
Total Tax 28,919 31,520 25,973 28,490 Trade receivables 55,870 89,569 98,652 106,786
Effective tax rate (%) 32.9 28.1 27.0 27.4 Cash & Bank Balance 13,052 83,221 95,993 109,390
Other Current Assets 6,654 20,879 20,879 20,879
Profit after tax 58,967 80,669 70,125 75,327 Total Assets 896,717 1,253,236 1,435,747 1,573,134
Minority interest (13,216) 18,143 20,360 20,595
Share Profit from Associate - - - - Equity
Equity Share Capital 15,242 15,242 15,242 15,242
Adjusted PAT 72,183 62,525 49,764 54,732 Other Equity 240,082 288,191 329,315 373,177
YoY gr. (%) (12.4) (13.4) (20.4) 10.0 Total Networth 255,324 303,433 344,558 388,419
Margin (%) 3.3 2.1 1.5 1.6
Extra Ord. Income / (Exp) - - - - Non-Current Liabilities
Long Term borrowings 96,559 234,348 221,042 207,735
Reported PAT 72,183 62,525 49,764 54,732 Provisions 793 - - -
YoY gr. (%) (12.4) (13.4) (20.4) 10.0 Other non current liabilities 344 - - -
Margin (%) 3.3 2.1 1.5 1.6
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 108,794 307,973 434,208 503,385
Total Comprehensive Income 72,183 62,525 49,764 54,732 Trade payables 158,459 278,658 306,820 330,396
Equity Shares O/s (m) 1,524 1,524 1,524 1,524 Other current liabilities 208,391 128,823 129,120 143,199
EPS (Rs) 47.4 41.0 32.6 35.9 Total Equity & Liabilities 896,717 1,253,236 1,435,747 1,573,134
Source: Company Data, PL Research Source: Company Data, PL Research

May 20, 2019 3

 Hindustan Petroleum Corporation

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY18 FY19 FY20E FY21E Year
Y/e Mar FY18 FY19 FY20E FY21E

PBT 87,886 112,189 96,098 103,816 Per Share(Rs)

Add. Depreciation 28,344 33,992 36,950 38,664 EPS 47.4 41.0 32.6 35.9
Add. Interest 6,179 10,284 13,298 14,210 CEPS 66.0 63.3 56.9 61.3
Less Financial Other Income 15,279 14,910 16,576 18,493 BVPS 167.5 199.1 226.1 254.8
Add. Other - - - - FCF 113.1 (201.4) (38.0) 2.1
Op. profit before WC changes 122,408 156,465 146,346 156,691 DPS - - - -
Net Changes-WC 208,860 (53,768) (1,329) 11,901 Return Ratio(%)
Direct tax (90,647) (31,520) (25,973) (28,490) RoCE 18.5 16.5 10.1 9.5
Net cash from Op. activities 240,621 71,177 119,043 140,102 ROIC 9.5 9.2 6.9 6.8
Capital expenditures (68,160) (378,113) (176,901) (136,901) RoE 31.0 22.4 15.4 14.9
Interest / Dividend Income - - - - Balance Sheet
Others 13,426 - - - Net Debt : Equity (x) 0.6 1.5 1.6 1.5
Net Cash from Invt. activities (54,734) (378,113) (176,901) (136,901) Net Working Capital (Days) 14 (1) (1) (1)
Issue of share cap. / premium - - - - Valuation(x)
Debt changes 16,535 187,045 112,928 55,870 PER 6.2 7.2 9.0 8.2
Dividend paid (27,939) (30,009) (24,728) (27,124) P/B 1.8 1.5 1.3 1.2
Interest paid (6,179) (10,284) (13,298) (14,210) P/CEPS 4.5 4.6 5.2 4.8
Others 28,473 (22,367) (24,633) (24,936) EV/EBITDA 5.5 6.4 7.8 7.6
Net cash from Fin. activities 10,890 124,385 50,270 (10,399) EV/Sales 0.3 0.3 0.3 0.3
Net change in cash 196,777 (182,552) (7,588) (7,198) Dividend Yield (%) - - - -
Free Cash Flow 172,461 (306,936) (57,857) 3,201 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Key Operating Metrics
Y/e Mar Q1FY19 Q2FY19 Q3FY19 Q4FY19
Y/e Mar FY18 FY19 FY20E FY21E
Net Revenue 676,289 675,180 721,118 679,381
Crude /bbl 58 70 75 80
YoY gr. (%) 26.5 42.1 25.5 11.7
US$/Rs 65 71 73 75
Raw Material Expenses 600,921 609,400 682,638 586,214
GRM (US$/bbl) 7 5 6 7
Gross Profit 75,367 65,780 38,480 93,168
Refining volume (MTPA) 18 18 18 18
Margin (%) 11.1 9.7 5.3 13.7
Net subsidy burden (Rs m) 20,524 31,709
EBITDA 31,907 21,220 9,632 51,662
Source: Company Data, PL Research
YoY gr. (%) 9.2 - - -
Margin (%) 4.7 3.1 1.3 7.6
Depreciation / Depletion 7,064 7,385 7,393 8,285
EBIT 24,843 13,835 2,239 43,378
Margin (%) 3.7 2.0 0.3 6.4
Net Interest 1,909 2,007 1,472 1,872
Other Income 3,056 4,134 3,937 5,225
Profit before Tax 25,990 15,962 4,704 46,731
Margin (%) 3.8 2.4 0.7 6.9
Total Tax 8,798 5,042 2,228 17,032
Effective tax rate (%) 33.8 31.6 47.4 36.4
Profit after Tax 17,192 10,920 2,475 29,699
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 17,192 10,920 2,475 29,699
YoY gr. (%) 85.9 (37.1) (87.3) 69.9
Margin (%) 2.5 1.6 0.3 4.4
Extra Ord. Income / (Exp) - - - -
Reported PAT 17,192 10,920 2,475 29,699
YoY gr. (%) 85.9 (37.1) (87.3) 69.9
Margin (%) 2.5 1.6 0.3 4.4
Other Comprehensive Income - - - -
Total Comprehensive Income 17,192 10,920 2,475 29,699
Avg. Shares O/s (m) - - - -
EPS (Rs) - - - -
Source: Company Data, PL Research

May 20, 2019 4

 Hindustan Petroleum Corporation

Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
500
1 23-May-18 BUY 433 287

416 2 28-Jun-18 BUY 403 276

3 10-Jul-18 BUY 403 259
333
4 8-Aug-18 BUY 403 283
249 5 5-Oct-18 Accumulate 193 217
6 1-Nov-18 Hold 219 230
165
May - 18

May - 19
May - 16

May - 17
Nov - 16

Nov - 17

Nov - 18
7 7-Jan-19 Hold 219 250
8 5-Feb-19 Hold 219 225
9 27-Mar-19 BUY 326 277
10 5-Apr-19 BUY 326 264

Analyst Coverage Universe

Sr. No. CompanyName Rating TP (Rs) Share Price (Rs)
1 Bharat Petroleum Corporation BUY 499 358
2 GAIL (India) BUY 482 349
3 Hindustan Petroleum Corporation BUY 326 264
4 I.G. Petrochemicals BUY 477 248
5 Indian Oil Corporation Accumulate 207 158
6 Indraprastha Gas BUY 530 305
7 Mahanagar Gas BUY 1,179 889
8 NOCIL BUY 221 117
9 Oil & Natural Gas Corporation BUY 223 157
10 Oil India Accumulate 236 180
11 Petronet LNG BUY 306 233
12 Reliance Industries Accumulate 1,406 1,386

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

May 20, 2019 5

 Hindustan Petroleum Corporation

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May 20, 2019 AMNISH

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Date: 2019.05.20 22:18:27 +05'30'