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  1. HPCL: A fine performance

HPCL: A fine performance

Ebitda & net profit beat estimates by huge margin owing to product inventory gains

By: | Updated: August 29, 2016 7:36 AM
HPCL refinery, HPCL new refinery, Hindustan Petroleum Corp, HPCL investment, HPCL refining capacity Adjusted for this, Ebitda was 20% and net profit 30% higher helped by better gross refining margins and marketing earnings. HPCL’s result will set the expectations for IOCL and BPCL results next week. (Reuters)

HPCL’s Ebitda and net profit were 50% and 70% ahead of estimates due to large product inventory gains.

Adjusted for this, Ebitda was 20% and net profit 30% higher helped by better gross refining margins and marketing earnings. HPCL’s result will set the expectations for IOCL and BPCL results next week.

While inventory gains are one-off in nature and should not impact fair value, it would have implications for full year dividend payout of these companies.

20% beat in Ebitda adjusted for inventory gains and other one-offs. HPCL’s (HPCL IN, Buy) Q1 Ebitda and net profit were 50 and 70% ahead of our (and consensus) estimates.

However we note that the company reported larger than expected product inventory gains of R11 bn and lower forex losses, adjusted for which the Ebitda beat was 20% and net profit beat was 30%. Of the

Of the 20% Ebitda beat, 15% is explained by higher GRM of $ 6.8/bbl vs. our estimate of $ 5.5/bbl. We suspect the beat in GRM also includes some contribution from crude related inventory gains. Core marketing Ebitda adjusted for one-offs was 16% higher than our estimate and accounted for 5% of the overall beat in Ebitda.

Core marketing Ebitda adjusted for one-offs was 16% higher than our estimate and accounted for 5% of the overall beat in Ebitda.

Setting the tone for other two OMC results next week? BPCL (BPCL IN, Buy) and IOCL (IOCL IN, Buy), the other two state owned oil marketing & refining companies report Q1 results next week. Based on HPCL’s results, it seems likely that they will also report higher GRM and inventory gains

Based on HPCL’s results, it seems likely that they will also report higher GRM and inventory gains than is factored into our estimates.

Inventory gains will impact dividend payout: While inventory gains are one-off in nature and should not matter to fair value of these companies, we note that it will impact dividend payout for the year since public sector oil & gas companies have to mandatorily pay at least 30% of reported profit as dividend. This could improve the dividend yield of these companies in FY17.

This could improve the dividend yield of these companies in FY17.

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