RESULTS REVIEW 4QFY16

30 MAY 2016

Hindustan Petroleum Corporation

BUY
INDUSTRY

OIL & GAS

CMP (as on 27 May 16)

Rs 932

Target Price

Rs 1,100

Nifty

8,157

Sensex

26,654

KEY STOCK DATA

Bloomberg

HPCL IN

No. of Shares (mn)

339

MCap (Rs bn) / ($ mn)

315/4,707

6m avg traded value (Rs mn)

905

STOCK PERFORMANCE (%)

52 Week high / low

Rs 991/615
3M

6M

12M

Absolute (%)

40.9

14.7

47.9

Relative (%)

25.8

12.7

51.2

SHAREHOLDING PATTERN (%)

Promoters

51.11

FIs & Local MFs

14.01

FIIs

19.30

Public & Others

15.58

Source : BSE

Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334
Deepak Kolhe
deepak.kolhe@hdfcsec.com
+91-22-6171-7316

Proxy for marketing play

FY16 has been outstanding for OMCs led by (1)
Strong gross refining margins, (2) Higher profits in
the marketing segment owing to higher volumes at
lower product prices and healthy marketing margins,
and (3) Reduced interest burden owing to very less
net oil under-recovery and lower subsidy receivables.
As a result, HPCLs EBITDA was Rs 79bn (+40% YoY)
and APAT Rs 39bn (+42%).
The benefits of lower crude prices (balance sheet
healing and lower interest cost) are mostly priced in.
Expansion in marketing margins can be the next
trigger. Margins on auto fuels were not increased
during FY09-14 owing to high retail prices. We sense
a favourable outlook for raising marketing margins
till crude is below US$ 60/bbl. HPCL is best placed as
the marketing segment contributes ~80% to EBITDA.
However, there may not be a steady increase owing
to political compulsions.
We are positive on HPCL owing to a structural
uptrend in the marketing segment. Our SOTP target
is Rs 1,100 (3.5x FY18E EV/e for standalone refining,

6x EV/e for marketing and Rs 199/sh from other

investments). Maintain BUY.

Highlights of the quarter

4QFY16 results: GRM of US$ 7.5/bbl and healthy

marketing margins led to an EBITDA of Rs 26.6bn.

APAT was Rs 15.5bn. Results are not comparable
owing to inventory, forex and UR impacts.

Total refinery throughput was 47 mnT (+6%

YoY,+3% QoQ). Combined GRM for both refineries
was strong at US$7.5/bbl vs.7.5 YoY and 7.9 QoQ.

There was a net over-recovery of Rs 370mn to

compensate for higher UR booked earlier.

Petroleum product sale volumes were strong at

9.1 mnT (+11% YoY,+5% QoQ).Pipeline throughput

was 4.2mnT (+10% YoY, -7% QoQ).

Near-term outlook: Low crude prices have led to a

robust demand in end products. However, we

believe that refining margins have peaked and a
sequential decline may start soon.

Financial Summary (Standalone)

(Rs bn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

4QFY16
421.95
26.61
15.53
45.9

4QFY15
446.16
35.14
21.62
63.9

YoY (%)
(5.4)
(24.3)
(28.2)
(28.2)

3QFY16
435.00
22.40
10.42
30.8

QoQ (%)
(3.0)
18.8
49.0
49.0

FY15
2,066.26
56.67
27.30
80.6
11.6
8.1
17.6

FY16P
1,795.71
79.07
38.63
114.1
8.2
5.4
22.5

FY17E
1,731.67
73.11
34.66
102.4
9.1
5.5
17.8

FY18E
1,856.89
76.73
36.79
108.6
8.6
5.2
16.9

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

HPCL : RESULTS REVIEW 4QFY16

Benefits from declining gross under-recovery

Benefits from marketing margins expansion

HPCLs gross UR will remain muted at ~Rs 70bn.

Government receivables will fall to ~Rs 20bn.

Diesel marketing margins have increased by 10%

Rs bn

300

60
40

200
20

100

5,500

Diesel Margins (Rs/l) RHS

Rs /l

Rs /t

5,000

4,000

1.4

3,500

1.2

Lower government receivables have led to a

sharp reduction in total debt to ~Rs 150bn.
Total interest cost remains low at ~Rs 5bn.

10

10

100
50
FY18E

FY17E

FY16P

FY15

FY14

FY13

FY17E

FY16P

FY18E
FY17E

150

FY16P

15

Dividend Yield

FY15

15

FY14

200

FY13

20

FY12

20

250

RoIC

FY10

25

300

FY15

strong profit growth.

25

FY12

FY14

Dividend yield will be ~3.5%.

We expect RoE/RoCE to remain strong, led by
RoE

Rs bn

Source: Company, HDFC sec Inst Research

FY13

Improvement in return ratios

Interest Cost RHS

Rs bn

FY11

FY12

Source: Company, HDFC sec Inst Research

Reducing debt and lowering interest cost

FY10

1.0
FY11

Source: Company, HDFC sec Inst Research

Total Debt

2,500

FY18E

FY17E

FY16P

FY15

FY14

FY13

FY12

FY11

FY10

1.8
1.6

4,500

3,000

350

Blended Marketing Margin (Rs/t)

FY11

400

Govt share in UR
Receivables/Govt share (%)

FY18E

HPCL Gross UR
Govt Receivables

in FY16 (it was decontrolled in FY15). We expect

~5% per year going forward.

Source: Company, HDFC sec Inst Research

Page | 2

HPCL : RESULTS REVIEW 4QFY16

Quarterly Financials Snapshot (Standalone)

Other expenses were higher

on account of forex loss
Higher GRM led to strong
EBITDA

(Rs bn)
Revenues
Raw Material
Trading
Employee Expenses
Other Operating Expenses
EBITDA
Depreciation
PBIT
Other Income
Interest Cost
PBT
Tax
APAT
AEPS

4QFY16
421.95
89.39
256.68
4.61
44.66
26.61
6.75
19.86
4.08
1.91
22.02
6.50
15.53
45.9

4QFY15
446.16
121.38
254.13
6.08
29.43
35.14
5.55
29.59
4.78
1.53
32.84
11.21
21.62
63.9

YoY (%)
(5.4)
(26.4)
1.0
(24.2)
51.8
(24.3)
21.7
(32.9)
(14.6)
24.9
(32.9)
(42.1)
(28.2)
(28.2)

3QFY16
435.00
108.75
268.30
7.03
28.52
22.40
6.98
15.43
2.04
1.61
15.86
5.43
10.42
30.8

QoQ (%)
(3.0)
(17.8)
(4.3)
(34.5)
56.6
18.8
(3.2)
28.7
100.0
18.8
38.9
19.6
49.0
49.0

4QFY16
21.2
60.8
1.1
10.6
6.3
3.7
29.5

4QFY15
27.2
57.0
1.4
6.6
7.9
4.8
34.2

YoY (bps)
(602)
387
(27)
399
(157)
(117)
(466)

3QFY16
25.0
61.7
1.6
6.6
5.2
2.4
34.3

QoQ (bps)
(382)
(84)
(53)
403
116
128
(477)

4QFY16
4.7
4.2
9.1
7.5
2.5
(0.4)

4QFY15
4.5
3.8
8.2
7.5
10.5
(0.0)

YoY (%)
5.6
10.2
10.5
0.5
(75.8)
NA

3QFY16
4.6
4.5
8.7
7.9
4.8
0.4

QoQ (%)
2.8
(7.0)
4.6
(4.5)
(47.5)
NA

Margin Analysis
Raw Material As % Of Net Sales
Trading As % Of Net Sales
Employee Expenses As % Of Net Sales
Other Operating Expenses As % Of Net Sales
EBITDA Margin (%)
Net Profit Margin (%)
Tax Rate (%)

Key Quarterly Data

GRM was strong throughout
FY16

(Rs bn)
Refinery Throughput (mmt)
Pipeline Throughput (mmt)
Sales Volumes (mmt)
GRM (USD/bbl)
Gross Under/(Over) Recovery (Rs bn)
Net Under/(Over) Recovery (Rs bn)
Source: Company, HDFC sec Inst Research

Page | 3

HPCL : RESULTS REVIEW 4QFY16

Assumptions

We expect GRM to moderate

in FY17

We expect diesels marketing

margin to increase by 5% per
year

Lower gross UR will lead to

no net UR and lower debt

Refining Business
Throughput (mnT)
GRM (US$/bbl)
Marketing Business
Total Sales (mnT)
YoY Gr (%)
Diesel Volume (mn T)
Diesel Volume Gr (%)
Petrol Volume Gr (%)
Diesel Margin (Rs/l)
Macro
INR-US$
Crude Price (US$/bbl)
Total Sector UR (Rs bn)
HPCL Gross UR (Rs bn)
HPCL Net UR (Rs bn)

FY12

FY13

FY14

FY15

FY16P

FY17E

FY18E

16.2
2.9

15.8
2.1

15.5
3.4

16.2
2.8

17.2
6.7

17.2
4.3

17.2
4.8

29.5
9.1
14.2
15.3
7.5
1.4

30.3
2.8
15.5
8.7
5.2
1.4

31.0
2.1
16.0
3.3
8.6
1.4

32.0
3.3
15.8
(0.9)
13.1
1.4

34.2
6.9
17.0
7.5
14.5
1.5

35.4
3.5
17.5
3.0
5.0
1.6

36.4
3.0
18.1
3.0
5.0
1.7

47.9
114.5
1,385
304
0.1

54.5
110.0
1,610
362
2.1

60.5
107.8
1,399
325
4.8

61.2
90.5
723
164
5.5

65.5
47.6
276
60
0.1

66.0
48.0
313
68
-

66.0
50.0
343
74
-

Source: Company, HDFC sec Inst Research

Change In Estimates

Change in estimates
factoring in higher marketing
volumes and margins

(Rs bn)
Revenue
EBITDA
PAT
EPS (Rs/sh)

FY17E Old
1,456.9
62.13
29.32
86.6

FY17E New
1,731.7
73.11
34.66
102.4

% ch
18.9
17.7
18.2
18.2

FY18E Old
1,535.1
62.77
30.57
90.3

FY18E New
1,856.9
76.73
36.79
108.6

% ch
21.0
22.2
20.4
20.4

Source: HDFC sec Inst Research

Page | 4

HPCL : RESULTS REVIEW 4QFY16

Valuation (Based on FY18)

Business

Value
(Rs bn)

Value
(Rs/sh)

3.5
6.0
7.0

76
317
15
(103)
305

224
937
45
(305)
901

EV/EBIDTA on FY18E
EV/EBIDTA on FY18E
EV/EBIDTA on FY18E
As on Mar-17E

0.80
1.00

22
50

52
147
199
1,100

25% discount to CMP

1x BV

EBITDA (Rs bn) Multiple

Standalone
Refining
Marketing
Pipeline
Standalone Net Debt
Standalone Equity Value
Investments
Traded Investments
Non-traded Investments
Investments Equity Value
Value Per Share

21.67
52.90
2.16

Valuation basis

Source: Company, HDFC sec Inst Research

Peer Valuations

ONGC
OIL India
RIL
GAIL
IGL
Petronet LNG*
BPCL
HPCL
IOC

Mcap
(Rs bn)
1,822
210
3,158
481
80
205
732
315
1,003

CMP
(Rs/sh)
213
349
975
379
574
273
1,012
932
413

Reco.
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY

TP
(Rs/sh )
230
395
1,155
460
640
320
1,140
1,100
465

EPS (Rs/sh)
FY16E FY17E
FY18E
21.4
16.6
20.0
36.6
27.7
31.3
84.6
84.1
105.8
18.1
24.9
32.1
29.7
33.0
38.3
12.2
16.2
22.9
98.0
79.2
91.4
114.1
102.4
108.6
40.7
41.1
55.8

FY16E
10.0
9.5
11.5
20.9
19.3
22.4
10.3
8.2
10.2

P/E (x)
FY17E
12.8
12.6
11.6
15.3
17.4
16.8
12.8
9.1
10.1

FY18E
10.6
11.1
9.2
11.8
15.0
12.0
11.1
8.6
7.4

FY16E
1.2
0.9
1.3
1.6
3.3
3.2
2.7
1.7
1.3

P/BV (x)
FY17E
1.1
0.9
1.2
1.5
2.9
2.8
2.4
1.5
1.2

FY18E
1.1
0.9
1.1
1.4
2.5
2.4
2.1
1.4
1.1

FY16E
12.3
10.0
12.0
7.7
18.5
15.2
28.5
22.5
13.8

ROE (%)
FY17E
9.1
7.3
10.8
10.0
17.8
17.8
19.7
17.8
12.7

FY18E
10.5
7.9
12.3
11.9
18.0
21.6
20.0
16.9
15.8

Source : Company, HDFC sec Inst Research, * Consolidated

Page | 5

HPCL : RESULTS REVIEW 4QFY16

Standalone Income Statement

Standalone Balance Sheet

(Rs bn)
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
Other Operating Expenses
Operating Profits
Operating Profit Margin (%)
Other Operating Income
EBITDA
EBITDA Margin (%)
EBITDA Growth (%)
Depreciation
EBIT
Other Income (Incl EO Items)
Interest
PBT
Tax
RPAT
EO (Loss) / Profit (Net Of Tax)
APAT
Growth (%)
AEPS
Growth (%)

(Rs bn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Long-term Debt
Short-term Debt
Total Debt
Deferred Taxes
Long-term Provisions &
Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
LT Investments
LT Loans & Advances
Other non-current assets
Total Non-current Assets
Inventories
Debtors
Cash & Equivalents
Other Current Assets
Total Current Assets
Creditors
Other Current Liabilities
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF
FUNDS

FY14
FY15
FY16P
FY17E
FY18E
2,231.24 2,063.80 1,792.81 1,728.71 1,853.88
8.0
(7.5)
(13.1)
(3.6)
7.2
2,065.26 1,891.86 1,566.50 1,510.27 1,623.10
20.30
24.15
23.15
24.42
25.76
95.65
93.59
127.00
123.88
131.31
50.03
54.21
76.17
70.15
73.71
2.2
2.6
4.2
4.1
4.0
2.27
2.46
2.90
2.96
3.02
52.30
56.67
79.07
73.11
76.73
2.3
2.7
4.4
4.2
4.1
43.1
8.3
39.5
(7.5)
4.9
22.02
19.79
26.67
27.36
28.86
30.29
36.88
52.40
45.76
47.87
9.23
11.73
11.38
11.77
12.33
13.36
7.07
6.40
5.40
4.88
26.16
41.54
57.38
52.13
55.32
8.82
14.21
18.75
17.46
18.53
17.34
27.33
38.63
34.66
36.79
(0.41)
0.03
17.75
27.30
38.63
34.66
36.79
115.0
53.8
41.5
(10.3)
6.1
52.4
80.6
114.1
102.4
108.6
115.0
53.8
41.5
(10.3)
6.1

Source: Company, HDFC sec Inst Research

FY14

FY15

FY16P

FY17E

FY18E

3.39
146.73
150.12
155.55
166.11
321.66
39.08

3.39
156.83
160.22
148.56
54.80
203.35
41.04

3.39
180.17
183.56
106.33
71.68
178.02
48.10

3.39
202.55
205.94
94.33
59.68
154.02
48.10

3.39
226.31
229.70
92.83
59.68
152.52
48.10

77.95

88.74

98.82

112.02

127.06

588.82

493.35

508.50

520.08

557.38

259.12
45.86
57.36
15.76
1.46
379.55
187.68
54.66
51.59
106.45
400.38
108.86
82.25
191.11
209.26

290.63
34.74
58.68
14.30
1.17
399.51
129.72
36.03
53.91
56.33
275.99
89.36
92.80
182.16
93.84

318.48
34.74
60.00
15.73
0.86
429.82
127.09
41.93
50.14
55.73
274.89
65.87
130.34
196.21
78.68

321.13
64.74
60.00
14.30
0.86
461.03
113.86
37.95
50.64
55.73
258.18
68.79
130.34
199.13
59.05

322.27
94.74
60.00
14.30
0.86
492.17
122.10
40.70
50.79
55.73
269.31
73.77
130.34
204.10
65.21

588.82

493.35

508.50

520.08

557.38

Source: Company, HDFC sec Inst Research

Page | 6

HPCL : RESULTS REVIEW 4QFY16

Standalone Cash Flow

(Rs bn)
Reported PBT
Non-operating & EO items
Depreciation
Interest expenses
Working Capital Change
Tax Paid
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
Other Income
INVESTING CASH FLOW ( b )
Debt Issuance
Interest expenses
FCFE
Share capital Issuance
Dividend
Others
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
EO Items
Closing Cash & Equivalents
Source: Company, HDFC sec Inst Research

Standalone Key Ratios

FY14
FY15
26.16
41.54
(9.23) (11.73)
22.02
19.79
13.36
7.07
20.09
168.24
8.82
14.21
81.22
239.11
(48.50) (45.73)
32.71
193.39
25.30
(1.32)
9.82
11.68
(13.38) (35.36)
(5.27) (148.76)
(13.36)
(7.07)
14.08
37.56
(6.14)
(9.71)
1.66
(7.53)
(23.11) (173.06)
44.72
30.70
(0.58)
0.04
51.59
53.91

FY16P
57.38
(11.38)
26.67
6.40
27.41
18.75
125.23
(54.52)
70.71
(1.33)
11.38
(44.47)
(25.34)
(6.40)
38.97
(13.67)
(1.62)
(47.02)
33.74
50.14

FY17E
52.13
(11.77)
27.36
5.40
34.76
17.46
125.33
(60.00)
65.33
11.77
(48.23)
(24.00)
(5.40)
35.93
(12.28)
(41.68)
35.42
50.64

FY18E
55.32
(12.33)
28.86
4.88
9.04
18.53
104.30
(60.00)
44.30
12.33
(47.67)
(1.50)
(4.88)
37.92
(13.03)
(19.42)
37.22
50.79

PROFITABILITY %
EBITDA margin
EBIT margin
APAT margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax rate %
Fixed Asset turnover (x)
Inventory (days)
Debtor (days)
Other current assets (days)
Payables (days)
Other Curr Liab & Prov (days)
Cash Conversion Cycle (days)
Net Debt/EBITDA (x)
Net D/E
Interest coverage
PER SHARE DATA
EPS (Rs)
CEPS (Rs)
DPS (Rs)
BV (Rs)
VALUATION
P/E (x)
P/Cash EPS (x)
P/BV (x)
EV/EBITDA (x)
EV/Revenue (x)
OCF/EV (%)
FCFF/EV (%)
FCFE/M CAP (%)
Dividend Yield (%)

FY14

FY15 FY16P

FY17E FY18E

2.3
1.4
0.8
12.4
4.5
4.6

2.7
1.8
1.3
17.6
6.1
6.1

4.4
2.9
2.2
22.5
10.3
9.2

4.2
2.6
2.0
17.8
8.5
7.9

4.1
2.6
2.0
16.9
8.3
7.9

33.0
5.7
31
9
17
18
14
25
3.8
1.3
2.3

34.2
4.6
23
6
10
16
22
1
2.5
0.9
5.2

32.7
3.6
26
9
11
13
33
(1)
1.4
0.6
8.2

33.5
3.2
24
8
12
15
34
(5)
1.1
0.4
8.5

33.5
3.2
24
8
11
15
32
(4)
1.1
0.4
9.8

52.4
117.4
15.5
443.3

80.6
139.1
24.5
473.1

114.1
192.8
34.5
542.1

102.4
183.2
31.0
608.2

108.6
193.9
32.9
678.3

17.8
7.9
2.1
9.8
0.2
12.8
3.4
(0.4)
1.7

11.6
6.7
2.0
8.1
0.2
46.9
36.9
4.1
2.6

8.2
4.8
1.7
5.4
0.2
21.6
8.7
1.7
3.7

9.1
5.1
1.5
5.5
0.2
23.6
8.6
1.5
3.3

8.6
4.8
1.4
5.2
0.2
17.8
2.8
1.6
3.5

Page | 7

HPCL : RESULTS REVIEW 4QFY16

RECOMMENDATION HISTORY
Date
1-Jun-15
12-Aug-15
8-Oct-15
10-Nov-15
6-Jan-16
13-Feb-16
8-Mar-16
30-May-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

TP

Nov-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

1,300
1,200
1,100
1,000
900
800
700
600
500
400

Oct-15

HPCL

CMP
675
882
789
734
882
690
748
932

Reco
BUY
NEU
BUY
BUY
NEU
BUY
BUY
BUY

Target
850
930
930
850
850
850
850
1,100

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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HPCL : RESULTS REVIEW 4QFY16

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