Nomura’s cut its price target on Hindustan Petroleum Corporation (HPCL) to Rs 420 from Rs 440, implying an upside of 9.1% from the current market price. This came after its Q1FY27 results focused on the impact of fuel marketing losses, rising leverage, and the outlook for major upcoming projects.
Significant Q1 FY27 earnings miss
HPCL reported a standalone EBITDA loss of Rs 16,100 crore for the first quarter of FY27, which was worse than Nomura’s estimate of an Rs 13,900 crore loss. This “washout” quarter was primarily driven by massive fuel retailing losses and marketing under-recoveries exceeding Rs 26,000 crore for petrol, diesel, and LPG.
High sensitivity to crude oil volatility
Nomura noted that HPCL is the most leveraged to crude oil prices among its peers because it relies heavily on external sourcing for the gasoline and diesel it markets. With crude prices rising above $100 per barrel due to Middle East tensions, earnings visibility remains unclear for the near term.
Balance sheet pressure and deleveraging strategy
HPCL’s leverage rose sharply to 1.43x in Q1FY27 from 0.78x in the previous quarter due to increased debt and losses. Management is responding with a seven-pronged strategy that includes tightening capex (targeting less than Rs 9,700 crore for FY27) and refinancing high-cost loans to repair the balance sheet.
“One weak quarter has undone the deleveraging cycle of the last 2-3 years for HPCL, in our view. Deleveraging the balance sheet is the top agenda as per management’s stated seven-pronged strategy. We expect deleveraging to play out gradually on lower capex intensity, and healthy cash flow generation from earnings recovery and working capital unlocking amid our expectation of a gradually declining oil price,” said Nomura.
Critical role of HRRL and Vizag RUF
The commissioning and stabilisation of major projects are essential for HPCL to become self-sufficient in products. The Rajasthan refinery (HRRL) declared commercial operations on June 22, 2026, and is expected to reach full capacity by Q4FY27, while the Vizag Residue Upgradation Project (RUF) is targeted for stabilisation in Q2 FY27 to lift profitability.
This adjustment accounts for a cut in FY28 EBITDA estimates, and Nomura indicated a preference for other oil marketing companies like Indian Oil Corporation and Bharat Petroleum Corporation over HPCL.
Hindustan Petroleum Corporation share price performance
The share price of HPCL has fallen 2.4% in the past five trading days. The stock has surged 1.5% in the last one month. However, the stock has declined 5.7% in the past six months. HPCL’s share price has dropped 6.3% over the previous one year.