HPCL reported 3QFY16 EBITDA of R1,040 crore, led by GRM of $7.9/bbl (v/s est. of $5/bbl). Adventitious inventory losses stood at R420 core, and forex loss stood at R40 crore. Other expenditure was higher than estimate at R2,850 crore. PAT stood at R1,040 crore (vs estimate of R470 crore). Difference at PAT narrowed due to higher depreciation of R7.0 billion (vs estimate of R590 crore), higher interest of R160 crore (estimate of R150 crore) and lower other income.
HPCL’s 3QFY16 gross under-recovery stood at R4.8 billion, of which government shared R4.4 billion, leading to net under-recovery of R430 million. While upstream companies were exempt from subsidy sharing this quarter, we believe their subsidy burden will rise with increase in crude prices. Similar to previous years, quarterly subsidy sharing is ad-hoc. In line with govt. guidance, we now model OMCs’ sharing at nil in FY16/FY17/FY18.
While, the marketing sales stood at 8.7mmt (+7% y-o-y, +9% q-o-q), refinery throughput was at 4.6mmt (+15% y-o-y, +9% q-o-q).
HPCL’s gross debt as of 3QFY16 stands at R188 billion (largely flat q-o-q). Of the three OMCs, HPCL’s earnings are more sensitive to a change in the marketing margin—given its higher ratio of marketing-to-refining volume. Hence, it would be the largest beneficiary of higher auto fuel margins.
We value HPCL at 5.5x for refining and 8x for marketing to arrive at a fair value of Rs1,299 implying a 89% upside.