IMD issues 'red' alert for Gujarat, Rajasthan; floods displace thousands

IMD issues 'red' alert for Gujarat, Rajasthan; floods displace thousands

HPCL share price today: Hindustan Petroleum Corporation (HPCL) share price today hit a record high of Rs 447.65 per share as it rallied 5 per cent on the BSE in Wednesday's intraday trade. HPCL share price surged on the back of heavy volumes in an otherwise weak market as oil prices dropped over 4 per cent on Tuesday, erasing all of its gains for the year. In comparison, the BSE Sensex was down 0.25 per cent at 82,345 at 3:25 PM.

The average trading volume on the counter more than doubled with a combined 1.72 per cent equity of the oil marketing company changing hands on the NSE and BSE till the time of writing of this report. Thus far in the calendar year 2024, HPCL has outperformed the market by surging 67 per cent as against 14 per cent rise in the benchmark index. Oil And Natural Gas Corporation Limited (ONGC), the promoter of HPCL, held 54.90 per cent stake in the company at the end of the June quarter (Q1 FY25). HPCL is, primarily, engaged in the business of refining crude oil and marketing of petroleum products.

The Corporation has, among others, refineries at Mumbai and Visakhapatnam, and LPG bottling plants, and Lube blending plants. The Corporation's marketing infrastructure includes a vast network of Installations, Depots, Aviation Service Stations, Retail Outlets, and LPG distributors. OMCs earnings are usually a function of refining margins and a top-up with marketing margins. If oil were to retail at $50/ barrel with refining margins at $5/bbl and marketing margins add an incremental $5/bbl, then OMCs' gross profit will total to $10/bbl, analysts at Emkay Global Financial Services said.

In a free market scenario, OMCs will be able to maintain their marketing spread even as oil and refining margins variate to global demand-supply. However, OMCs have kept their retail prices (indexed to oil at $85/bbl and normal GRMs) unchanged over the last 28 months (outside a brief cut pre-elections), implying that earnings are linked to oil and refining margins sliding up or down, the brokerage firm said.

For captively refined oil, the integrated margins remain the same. Simply put, OMCs with lower degree of refined integration will have higher leverage to earnings from lower crude and refining margins, which is HPCL, in our case, Emkay Global said. The brokerage firm expects the HPCL's earnings to blow out over the next two quarters, despite expectations of retail price-cuts and/or excise-duty increases. "More importantly, we believe that regulatory intervention will be a light touch at best, if oil prices grind lower, as we argue. This should positively impact valuations," analysts said. Meanwhile, Motilal Oswal Financial Services (MOFSL) sees demerger and potential listing of lubricant business; the commissioning of its bottom upgrade unit; and the start of its Rajasthan refinery in Q4FY25-end as the key catalysts for the stock.

At peak capacity utilisation (likely in FY28), HRRL will contribute ~37 per cent to HPCL's FY26E Ebitda. HPCL will account for HRRL on a joint venture basis (74 per cent stake). HPCL's marketing-to-refining ratio is set to improve from 2.1x to ~1.6x after the completion of its bottom upgradation unit (October 2024) and HRRL startup, and further to 1x if the merger with MRPL materialises. This will lower earnings volatility/under-recovery related uncertainty and drive structural improvement in the business, MOFSL said.