After the strong Q3, we had expected Hindustan Petroleum (HPCL)’s Q4 to be stronger. HPCL reported stronger than our expectations and beat our earnings estimates for both refining and marketing. Q4 EBITDA of `25.9 billion (+19% q-o-q) was 10% ahead of our estimate. Refining GRM was $7.5/bbl, vs our estimate of 5.8/bbl. The discount to Singapore complex margin remains very low at -$0.3/bbl (-$0.1/bbl in Q3).
While stand-alone earnings were strong, the bigger beat and surprise was on consolidated numbers. Reported consolidated FY16 earnings were more than 50% ahead of our/consensus estimates owing to significant turnarounds at both the Bhatinda and Mangalore refineries. Consolidated FY16 EBITDA of `103 billion was up 132% y-o-y. Consolidated FY16 EPS of `145/share (up 228% from `44.3 in FY15) was more than 50% ahead of our estimate (`95.8/share) and consensus (`93/share). A key reason for the surprise was a sharp turnaround at the Bhatinda refinery (HPCL has a 50% stake).
In refining, there are concerns in the near term. Regional refining margins have sharply contracted in the past two months to an average $5.2/bbl so far in Q1FY17, vs $7.8/bbl in Q4FY16. However, we remain positive on the refining cycle and expect margins to recover soon. Also, over the past 5-6 quarters, Indian refiners have benefited from discounts on West Asia crude, as OPEC producers have offered discounts to maintain market share.