The oil and gas sector stocks rarely follow a predictable path. Any key global events, crude price swings, policy changes, and quarterly results can send stock prices soaring one moment and slipping the next. Be it a small update from production guidance or refinery performance, any developments can turn trading screens bright green or deep red in minutes.
The brokerage house Motilal Oswal believes Hindustan Petroleum Corporation (HPCL) offers a compelling risk-reward setup. Motilal Oswal has maintained a ‘Buy’ rating on HPCL with a target price of Rs 600. This implies an upside potential of nearly 40% from current levels. The confidence comes despite a softer-than-expected December quarter, with the brokerage arguing that near-term noise is masking improving fundamentals and medium-term triggers.
Let’s take a look at the key reasons why Motilal Oswal has given a ‘Buy’ rating on to this stock –
Motilal Oswal on HPCL: Numbers miss estimates, but the core business holds up
HPCL’s Q3FY26 numbers were below expectations on the surface. Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at Rs 7,260 crore, about 17% lower than estimates. As per the brokerage house report, this is largely due to weaker refining and marketing performance. Gross refining margin, a key profitability metric, stood at USD 8.9 per barrel, which was 7% below estimates.
According to the brokerage report, when refining inventory losses and the impact of processing B80 crude are excluded, the performance looks far more resilient. In fact, excluding these factors, “HPCL posted a strong result,” with the adjusted quarterly EBITDA only 10% below estimates.
Motilal Oswal on HPCL: Efficiency gains quietly improving
One of the key positives highlighted by the brokerage is the gradual improvement in operating efficiency. As per the brokerage report, HPCL’s internal efficiency programme, Project Samriddhi 1.0, delivered benefits worth Rs 1,270 crore during the first nine months of the year, of which Rs 520 crore is recurring.
This has helped bring down operating costs, with the operating expenditure to turnover ratio improving from 1.6% to 1.4% year-on-year.
The report added that this translates into savings of around USD 0.54 per barrel.
Motilal Oswal on HPCL: Debt pressure easing, interest costs falling
Another area where HPCL appears to be making progress is balance sheet management. According to the brokerage report, the company’s focus on deleveraging is reflected in a sharp drop in interest costs, which fell to Rs 670 crore in the third quarter, compared with Rs 930 crore in the same period last year.
Motilal Oswal believes this trend is important as HPCL moves past the peak of its capital expenditure cycle.
Motilal Oswal on HPCL: Big projects nearing the finish line
Much of Motilal Oswal’s optimism is linked to HPCL’s upcoming projects. As per the brokerage report, the 3.55 million metric tonnes per annum residue upgradation facility at Visakhapatnam is expected to operate at 100% capacity from the first quarter of FY27.
In addition, the Hindustan Rajasthan Refinery Limited petrochemical complex has crossed 90% physical progress and is slated for commissioning in FY28.
According to the brokerage report, the planned capital expenditure for this project has increased to Rs 79,460 crore.
Motilal Oswal on HPCL: LPG losses and budget worries remain
According to the report, losses on liquefied petroleum gas (LPG) moderated to Rs 35-40 per cylinder in the third quarter from over Rs 100 per cylinder in the previous quarter.
However, this relief may be temporary, with under-recoveries expected to rise again to Rs 95-130 per cylinder in the fourth quarter due to higher Saudi propane prices.
There are also concerns around possible excise duty changes ahead of Union Budget 2026. However, Motilal Oswal believes that a Rs 1-1.5 per litre duty adjustment is “unlikely to trigger a sharp de-rating,” especially as earnings assumptions already factor in conservative marketing margins of Rs 4 per litre.
Motilal Oswal on HPCL: Valuation comfort and why HPCL stands out
At current levels, HPCL trades at around 1.2 times its estimated price-to-book value for FY27. According to the brokerage report, the company is expected to deliver a return on equity of 30.5% in FY26 and 21.9% in FY27, along with a 5.3% dividend yield.
Conclusion
The brokerage report continues to prefer HPCL among oil marketing companies due to its higher exposure to the marketing segment, improving cash flows as capital expenditure tapers, and the earnings boost expected from multiple project ramp-ups over the next 12 months.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.