The brokerage house Nuvama Institutional Equities has a ‘Reduce’ call on Hindustan Petroleum Corporation, with a target price of Rs 337, a downside of 15% from the trading price of Rs 397. The downgrade on the stock was maintained by the broker as the company reported weak margins in Q4FY25 and LPG under-recoveries offset its refining gains.

Nuvama on HPCL: Weak margin gains

In Q4FY25, the company’s EBITDA (earnings before interest, tax, depreciation, and amortisation) stood at Rs 5,800 crore as its gross refining margin per barrel of $8.4 stood strong compared to peer Indian Oil Corporation’s $ 7.9 and slightly below BPCL’s $9.2. The margins were supported in this quarter by a 32% mix of discounted Russian crude, an inventory gain of Rs 600 crore, and robust crude throughput of 6.7 mmt (15% Year-on-Year). 

Nuvama on HPCL: LPG under recoveries hurt margins

HPCL’s marketing margin for diesel at Rs 6/litre, which was up 58% YoY, and petrol at Rs 10/litre, which was up 41% YoY, stayed robust. However, LPG under recoveries of Rs 3,300 crore hurt marketing earnings. For FY25, the margins stood at Rs 10,900 crore. Its domestic volume, which was up 2.6% YoY in Q4FY25, was higher than that of BPCL’s 1.8% and below IOCL’s 2.8%.

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Nuvama on HPCL: Elevated capital expenditure

The company’s capital expenditure is likely to stay elevated with investment in other segments despite major projects nearing completion. Like Vizag refinery’s Residue Upgradation

Facility (RUF) is likely to start in Q2FY26, Barmer refinery is expected to start from October 2025, and the petchem unit is expected to be operational from January 2026. The company’s management gave a capex guidance of Rs 13,000- Rs 14,000 crore for FY26/27 to weigh on return ratio.

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However, the broker expects bottom top-upgradation shall add an incremental $3–4/bbl to gross refining margins, whose full impact in FY27 could provide relief. At full utilisation, Barmer refinery’s gross refining margin/bbl is estimated at $20.

Conclusion

In a nutshell, the company’s FY25 EBITDA fell 34% YoY and net profit declined 51% YoY owing to a weak refining margin environment in the near term and LPG under-recoveries. Additionally, elevated capex of Rs 14,000 crore (against an average of Rs 9,000– 10,000 crore) shall weigh on return ratios, rendering risk-reward unfavourable, said Nuvama.