HPCL Q3 earnings below estimates, positive outlook on margins: Report

HPCL Q3 analysis: Hindustan Petroleum Corporation Limited (HPCL) faced a setback in its December quarter  (Q3FY24) earnings, reporting a miss on earnings before interest, taxes, depreciation, and amortisation (EBITDA) primarily due to lower-than-anticipated marketing margins, analysts said. 

Despite robust refining throughput and in-line gross refining margins (GRM), the company's EBITDA fell short of analyst estimates, standing at Rs 2,130 crore compared to the projected Rs 3,140 crore. 

Image Credits: HPCL

The company’s Profit after tax (PAT) also fell below expectations, to Rs 530 crore versus the estimated Rs 1,220 crore, attributed to a higher tax rate.

For the nine months ended FY24, HPCL demonstrated a remarkable turnaround, reporting EBITDA of Rs 20,230 crore compared to a loss of Rs 10,370 crore in the same period last year. 

Meanwhile, PAT stood at Rs 11,850 crore, a notable improvement from the Rs 12,200 crore loss recorded in 9MFY23. The company's refining throughput increased by 17 per cent year-on-year, to 16.5 million metric tonnes (mmt), while GRM declined by 14 per cent to $ 9.8 per barrel. 

Marketing volumes also saw a positive trajectory, rising by 7 per cent to 34.5 million metric tonne (mmt), with marketing margins recovering to Rs 5.7 per litre compared to a loss of Rs 2.3 per litre in the first nine months of financial year 2023 (9MFY23).

Despite the disappointing quarterly results, Motilal Oswal analysts have upgraded HPCL to a ‘Buy’ rating. The optimism stems from expectations of improved marketing margins in the financial year 2025-2026 estimate (FY25-26E), with projected margins at Rs 3.3 per litre. 

Currently, marketing margins for motor spirit (MS) and high-speed diesel (HSD) stand at Rs 11 and Rs 8.6 per litre, respectively. 

However, analysts believe that unless there is a notable increase in crude prices or a major retail price cut, there is potential for earnings upgrades in the financial year 2025 estimate (FY25E).

HPCL's current financial year 2026 estimate price-to-book ratio (FY26E P/B ratio) of 1 time is viewed as offering a reasonable margin of safety, particularly with an estimated FY26E return on equity (RoE) of 20.6 per cent, analysts highlighted. 

Additionally, the impending demerger of the lubricant business presents a value-unlocking opportunity for the company. Hence, Motilal Oswal analysts have a target price (TP) of Rs 530, valuing the stock at 1.3 times December 2025 Price to Book Value Ratio (P/BV).