In Q2FY22, Hindustan Petroleum Corporation (HPCL)'s sales grew by 42.2% YoY and 12.9% QoQ to Rs876bn. Standalone EBITDA decreased by 16.4% YoY and 5.6% QoQ to Rs30 billion. Net profit declined by 22.4% YoY and  increased by 7.2% QoQ to Rs 19.2 billion, mainly supported by increase in other income which grew by 21% YoY to Rs 4.5 billion. The Company reported GRMs of USD 2.4/bbl during the quarter while Refinery utilization remained at 64% in Q2FY22.

"We are revising our PAT estimates downwards by 6.7% and 14% for FY22 and FY23 respectively. The stock is currently quoting at PER of 7.5xFY24E and 7.3xFY24 EV/EBITDA. We resume the coverage on the Company with Hold rating and SOTP based target price of Rs 326,” stated IDBI Capital Equity Research.

Key highlights and investment rationale

Healthy quarter: In Q2FY22, HPCL reported sales growth of 42.2% while PAT declined by 22.4% YoY. The Company reported GRMs of USD 2.4/bbl during the quarter. The refining throughput was up 1% QoQ to 2.5mmt at 64% utilization. During the quarter, petrol and diesel volumes grew by 13% and 9% respectively.

Outlook: The Company plans to incur capex of Rs 145 billion for FY22 and FY23. It is not planning any major expansion as of now.  HPCL currently has 327 EV charging stations which it plans to raise to 5000 by FY25. Also, currently it has 809 CNG stations   which it plans to increase to 5300 by FY25.

Valuations and recommendations: The stock is currently quoting at PER of 7.5xFY24E and 7.3xFY24 EV/EBITDA. We resume the coverage on the Company with Hold rating and SOTP based target price of Rs 326.

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