In the quarter ended September, the company reported a weak operating performance with a recurring EBITDA loss of Rs 712 crore and a net loss of Rs 779 crore. The brokerage attributes the weakness to the $8.4/bbl QoQ dip in gross refining margins or GRMs and continuing losses in marketing.
“Reported EBITDA loss of Rs 1,500 crore and net loss of Rs 2,170 crore were helped, however, by Rs 5,600 crore of accrued LPG subsidy, which was paid out during the quarter”, the brokerage said.
The brokerage further sees muted FY23 performance for the oil marketing companies (OMCs) even as the GRMs are seen to log double-digit growth as there are negligible marketing earnings to offset this advantage.
The brokerage continues to build-in reasonably strong GRMs over FY23E-FY24E for HPCL, coupled with the rising throughput, will be a key driver of earnings. However, the extent of losses in marketing remains too material to be offset by refining. Furthermore, while the brokerage does build-in a substantial narrowing of losses over the rest of FY23E, any delays/hurdles would pose a tangible downside to our already trimmed FY23E earnings.
For FY24, the brokerage anticipates a sharper recovery, with a 3x increase in refining throughput, thanks to the commissioning of around 7mtpa Vizag refinery, 4-5mtpa Rajasthan refinery (50% share) and the expected
merger (12 mtpa) apart from some revival in marketing margin.
Nonetheless, the brokerage is cautious, given the sharp rise in leverage, weak marketing margin as well as a decline in return ratios over FY22-FY24E.
Moreover, the brokerage maintains its FY23E/FY24E EPS estimates of Rs 5.5/53.1 per share to factor-in the lower marketing margins.
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