On Wednesday, Investec has increased the price target for Hindustan Petroleum Corp Ltd. (HPCL:IN) to INR360 from the previous INR300 while maintaining a Hold rating on the stock. This adjustment follows the company's first-quarter results, which revealed a significant decline in earnings before interest, taxes, depreciation, and amortization (EBITDA).
HPCL reported a 56% quarter-over-quarter (Q/Q) and a 78% year-over-year (Y/Y) decrease in EBITDA, which amounted to Rs21 billion. This drop was attributed mainly to a weaker margin performance. The refining margins saw a contraction of 28% Q/Q, settling at $5.0 per barrel, and gross marketing margins decreased by 36% Q/Q to Rs3.0 per liter.
Despite the current earnings volatility, which is expected to continue in the medium term due to the lack of pricing freedom for petrol, diesel, and liquefied petroleum gas (LPG), HPCL is progressing with strategic projects.
These projects include the residue upgradation at the Vizag facility, the Chhara LNG terminal, and the Barmer refinery. According to Investec, the advancement of these projects is critical to monitor.
Furthermore, HPCL is actively considering the separation of its lubricants business to enhance value discovery. Any developments in this area could potentially act as a catalyst for the company in the near term, providing a possible boost to its valuation.
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