13th February, 2020 Q3FY20 RESULT UPDATE

Retail Equity Research

Hindustan Petroleum Corporation Ltd. Oil, Gas & Consumable Fuels

BSE CODE: 500104 NSE CODE: HINDPETRO

Bloomberg CODE: HPCL:IN SENSEX: 41,566

12M Investment period Rating as per Large Cap

CMP Rs. 234 TARGET Rs. 289 RETURN 24% (Closing: 12-02-20)

KEY CHANGES: TARGET RATING EARNINGS

BUY

www.geojit.com

Topline improves sequentially, but declines YoY

In Q3FY20, Revenue grew 16.2% QoQ to Rs. 70,750cr but declined 1.9% YoY owing to drop in crude throughput. The planned shut downs at Visakh refinery due to BS-VI upgradation resulted in decline in throughput to 4.16mmt (8.8% YoY). Pipeline throughput went up marginally to 5.09mmt (+0.8% QoQ) but remained low compared to prior year period (-2.5% YoY). Domestic sales volumes grew 3.4% YoY to 9.76mmt supported by growth in Petrol, LPG and Lubes by 6.6%, 18.2% and 6.4%, respectively,

EBITDA aided by inventory gains

Gross refining margins (GRM) for the quarter dropped substantially to USD 1.79/bbl (vs. USD 3.72/bbl in Q3FY19), on the back of lower cracks of FO and LPG along with planned shut-downs. However, EBITDA grew 103.5% YoY to Rs. 1,867cr (-19.7% QoQ), as EBITDA margin expanded 130bps YoY to 2.6% (down 120bps on a sequential basis). Also, PAT tripled to Rs. 747cr (vs. Rs. 248cr in Q3FY19). Profitability improvements were primarily driven by Rs. 343cr of inventory gains booked during the quarter. Also, company recorded forex gains of Rs. 82cr during the quarter (vs. 557cr during the same period last year).

Drop in Brent crude prices to prove beneficial

Owing to lower demand in the international markets, Brent prices have dropped down by USD4 per bbl and are currently hovering around USD 54.35. Being a downstream company, HPCL stands to benefit over the next few months if the prices remain steady at these current levels, even if it were to opt for further cut in refining throughput.

Valuation

Marginal declines in Fuel oil and LPG cracks during the quarter affected the topline. Also, industry demand was impacted by Coronavirus outbreak and consequently led to increased volatility in oil prices. However, we expect market conditions to improve owing to IMO regulations. We estimate company’s earnings to grow at healthy 21.8% CAGR over FY20-22E supported by ongoing capacity expansion and expected improvements in GRMs and reiterate our BUY rating on the stock with a revised target price of Rs. 289 using SOTP methodology.

Company Data Market Cap (cr) Rs. 35,581 Enterprise Value (cr) Rs. 65,248 Outstanding Shares (cr) 152.4 Free Float 49.0% Dividend Yield 6.8% 52 week high Rs. 333 52 week low Rs. 211 6m average volume (lacs) 4.0 Beta 1.7 Face value Rs. 10

Shareholding % Q1FY20 Q2FY20 Q3FY20

Promoters 51.1 51.1 51.1

FII’s 19.6 18.3 19.2

MFs/Insti 17.2 21.5 20.8

Public 6.7 6.5 6.5

Others 5.3 2.6 2.4

Total 100.0 100.0 100.0

Promoters’ pledge 0.0 0.0 0.0

Price Performance 3 Month 6 Month 1 Year

Absolute Return -21.8% -5.5% 5.9% Absolute Sensex 3.0% 10.6% 15.0% Relative Return* -24.8% -16.1% -9.0%

*over or under performance to benchmark index

Standalone (cr) FY20E FY21E FY22E Sales 272,219 283,134 295,055 Growth (%) (1.1) 4.0 4.2 EBITDA 8,357 10,901 11,802 EBITDA Margin (%) 3.1 3.8 4.0 Adj. PAT 3,971 5,599 5,892 Growth (%) (34.1) 41.0 5.2 Adj. EPS 26.1 36.7 38.7 Growth (%) (34.1) 41.0 5.2 P/E 9.0 6.4 6.0 P/B 1.1 1.0 0.9 EV/EBITDA 7.8 6.1 5.9 ROE (%) 12.7 15.9 14.9 D/E 1.0 1.0 0.9

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Feb-19 May-19 Aug-19 Nov-19 Feb-20

HPCL Sensex Rebased

Inventory gains offset low volumes; PAT triples Hindustan Petroleum Corporation Ltd. (HPCL) is engaged in refining, transportation and marketing of petroleum products.

Standalone net revenue down 1.9% YoY, with Gross Revenue Margins (GRM) declining to USD1.79/bbl vs. USD3.72/bbl in Q3FY19.

EBITDA rose to Rs. 1,867cr (+103.5% YoY, -19.7% QoQ), while PAT tripled to Rs. 747cr on inventory gains registered during the quarter.

Crude oil refining throughput fell 8.8% YoY owing to the ongoing planned shutdown at the Visakh refinery. Marketing volumes were up 8.6% YoY, while pipeline throughput dropped 2.5% YoY.

Palanpur-Vadodara Pipeline commissioned with a carrying capacity of 8mtpa. Additionally, a Greenfield Marketing Terminal is being setup at Vadodara with fully automated rail and road tanker loading facilities.

We expect company’s earnings to grow at healthy 21.8% CAGR over FY20-22E supported by ongoing capacity expansion and expected improvements in GRMs and reiterate our BUY rating on the stock, with a revised TP of Rs. 289 based on SOTP.

www.geojit.com

Quarterly Financials (Standalone)

Profit & Loss Account

Q3FY20 Q3FY19 YoY

Growth % Q2FY20

QoQ Growth %

9MFY20 9MFY19 YoY

Growth %

Revenue 70,750 72,107 (1.9) 60,868 16.2 202,613 207,253 (2.2)

EBITDA 1,867 917 103.5 2,324 (19.7) 5,841 6,230 (6.2)

EBITDA margins 2.6 1.3 130bps 3.8 (120bps) 2.9 3.0 (10bps)

Depreciation 866 739 17.1 812 6.6 2,493 2,184 14.1

EBIT 1,001 178 462.3 1,512 (33.8) 3,348 4,046 (17.3)

Interest 252 147 71.5 286 (11.6) 744 539 38.1

Other Income 402 440 (8.5) 391 2.9 1,409 1,159 21.6

Exceptional Items - - - - - - - -

PBT 1,151 470 144.7 1,617 (28.8) 4,013 4,666 (14.0)

Tax 404 223 81.1 565 (28.5) 1,396 1,607 (13.1)

Share of profit from Associate

- - - - - - - -

Minority Interest - - - - - - - -

Reported PAT 747 248 201.8 1,052 (29.0) 2,610 3,059 (14.7)

Adjustments - - - - - - - -

Adjusted PAT 747 248 201.8 1,052 (29.0) 2,610 3,059 (14.7)

No. of shares 152.4 152.4 - 152.4 - 152.4 152.4 -

EPS (Rs.) 4.9 1.6 201.8 6.9 (29.0) 17.1 20.1 (14.7)

Sum of the parts (SOTP) valuation

Particulars Methodology Multiple Year Value (Rs. cr.) Value Per Share

(Rs.)

HPCL EV/EBITDA 5.5 FY22E 64,912 426

Less: Net debt 26,715 175

Total 251

Investments 48

- MRPL Market Price 1,258 8

- Oil India Market Price 364 2

- HMEL Net Profit 8.0 FY19 5,753 38

20% holding discount to investments (10)

Target price 289

Change in Estimates

Old estimates New estimates Change %

Year / Rs. cr FY20E FY21E FY20E FY21E FY22E FY20E FY21E

Revenue 271,101 281,971 272,219 283,134 295,055 0.4 0.4

EBITDA 10,118 11,839 8,357 10,901 11,802 (17.4) (7.9)

Margins (%) 3.7 4.2 3.1 3.8 4.0 (60bps) (40bps)

Adj. PAT 5,130 5,883 3,971 5,599 5,892 (22.6) (4.8)

EPS 33.7 38.6 26.1 36.7 38.7 (22.6) (4.9)

www.geojit.com

PROFIT & LOSS

Y.E March (Rs. cr) FY18A FY19A FY20E FY21E FY22E

Revenue 219,333 275,197 272,219 283,134 295,055

% change 17.3 25.5 (1.1) 4.0 4.2

EBITDA 10,672 11,446 8,357 10,901 11,802

% change (2.4) 7.3 (27.0) 30.4 8.3

Depreciation 2,753 3,017 3,331 3,847 4,358

EBIT 7,919 8,429 5,026 7,054 7,445

Interest 567 726 945 1,096 1,169

Other Income 1,849 1,635 1,633 2,124 2,213

PBT 9,202 9,339 5,714 8,056 8,478

% change 2.0 1.5 (38.8) 41.0 5.2

Tax 2,845 3,310 1,743 2,457 2,586

Tax Rate (%) 30.9 35.4 30.5 30.5 30.5

Reported PAT 6,357 6,029 3,971 5,599 5,892

Adj* - - - - -

Adj PAT 6,357 6,029 3,971 5,599 5,892

% change 2.4 (5.2) (34.1) 41.0 5.2

No. of shares (cr) 152.4 152.4 152.4 152.4 152.4

Adj EPS (Rs.) 41.7 39.6 26.1 36.7 38.7

% change (31.7) (5.2) (34.1) 41.0 5.2

DPS (Rs.) 17.0 15.9 10.4 14.7 15.5

CEPS (Rs.) 59.8 59.4 47.9 62.0 67.3

CASH FLOW

Y.E March (Rs. cr) FY18A FY19A FY20E FY21E FY22E

Net inc. + Depn. 9,110 9,046 7,302 9,446 10,250

Non-cash adj. (849) (3,946) (362) 3,121 1,731

Changes in W.C 2,757 3,350 1,450 140 246

C.F. Operation 11,018 8,450 8,390 12,707 12,227

Capital exp. (6,690) (11,257) (11,135) (11,584) (12,074)

Change in inv. (1,417) (739) (2) (2) -

Other invest.CF 716 612 627 690 759

C.F – Investment (7,391) (11,383) (10,510) (10,896) (11,315)

Issue of equity - - - - -

Issue/repay debt (1,075) 5,134 4,877 4,079 1,871

Dividends paid (2,792) (1,653) (1,588) (2,240) (2,357)

Other finance.CF (457) (790) (945) (1,121) (1,180)

C.F – Finance (4,324) 2,691 2,343 718 (1,665)

Chg. in cash (697) (243) 224 2,529 (754)

Closing cash 1,194 96 320 2,849 2,095

BALANCE SHEET

Y.E March (Rs. cr) FY18A FY19A FY20E FY21E FY22E

Cash 1,194 96 320 2,849 2,095

Accounts Receivable 5,573 5,653 4,900 5,380 6,196

Inventories 18,420 20,193 19,566 19,792 19,927

Other Cur. Assets 11,686 17,251 15,786 15,808 15,831

Investments 6,567 7,881 7,883 7,885 7,885

Gross Fixed Assets 46,829 52,722 63,857 75,441 87,515

Net Fixed Assets 37,519 40,523 48,311 56,024 63,717

CWIP 3,985 9,496 9,511 9,535 9,559

Intangible Assets 453 456 461 465 470

Def. Tax (Net) - - - - -

Other Assets 1,409 2,202 1,321 793 476

Total Assets 86,807 103,751 108,058 118,531 126,156

Current Liabilities 36,615 43,121 42,934 43,731 44,912

Provisions 77 55 56 56 57

Debt Funds 19,593 25,110 29,987 34,066 35,938

Other Liabilities 6,574 7,289 3,896 5,443 5,721

Equity Capital 1,524 1,524 1,524 1,524 1,524

Reserves & Surplus 22,424 26,651 29,660 33,710 38,004

Shareholder’s Fund 23,948 28,175 31,185 35,234 39,528

Minority Interest - - - - -

Total Liabilities 86,807 103,751 108,058 118,531 126,156

BVPS (Rs.) 157 185 205 231 260

RATIOS

Y.E March FY18A FY19A FY20E FY21E FY22E

Profitab. & Return

EBITDA margin (%) 4.9 4.2 3.1 3.8 4.0

EBIT margin (%) 3.6 3.1 1.8 2.5 2.5

Net profit mgn.(%) 2.9 2.2 1.5 2.0 2.0

ROE (%) 26.5 21.4 12.7 15.9 14.9

ROCE (%) 18.2 15.8 8.2 10.2 9.9

W.C & Liquidity

Receivables (days) 9.3 7.5 6.6 6.9 7.7

Inventory (days) 34.6 29.7 28.8 28.3 27.4

Payables (days) 29.5 27.8 27.9 28.3 28.8

Current ratio (x) 0.8 0.8 0.7 0.8 0.7

Quick ratio (x) 0.2 0.2 0.2 0.2 0.2

Turnover & Leverage

Gross asset T.O (x) 4.9 5.5 4.7 4.1 3.6

Total asset T.O (x) 2.7 2.9 2.6 2.5 2.4

Int. coverage ratio (x) 14.0 11.6 5.3 6.3 6.3

Adj. debt/equity (x) 0.8 0.9 1.0 1.0 0.9

Valuation

EV/Sales (x) 0.3 0.2 0.2 0.2 0.2

EV/EBITDA (x) 6.6 5.8 7.8 6.1 5.9

P/E (x) 8.3 6.9 9.0 6.4 6.0

P/BV (x) 2.2 1.5 1.1 1.0 0.9

www.geojit.com

Recommendation Summary

Investment Rating Criteria

Ratings Large caps Midcaps Small Caps

Buy Upside is above 10% Upside is above 15% Upside is above 20%

Accumulate - Upside is between 10%-15% Upside is between 10%-20%

Hold Upside is between 0% - 10% Upside is between 0%-10% Upside is between 0%-10%

Reduce/sell Downside is more than 0% Downside is more than 0% Downside is more than 0%

Not rated

Definition: Buy: Acquire at Current Market Price (CMP), with the target mentioned in the research note. Accumulate: Partial buying or to accumulate as CMP dips in the future. Hold: Hold the stock with the expected target mentioned in the note. Reduce: Reduce your exposure to the stock due to limited upside. The stock may still be a quality stock. Sell: Exit from the stock. Not rated: The analyst has no investment opinion on the stock.

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/ return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION

I, Joe V Samuel, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit. COMPANY OVERVIEW: Geojit, a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. GEOJIT is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time. DISTRIBUTION OF REPORTS: This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. GEOJIT will not treat the recipients of this report as clients by virtue of their receiving this report. GENERAL REPRESENTATION: The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. RISK DISCLOSURE: GEOJIT and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

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Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20

Dates Rating Target

15-Mar-17 HOLD 373

14-Sep-17 HOLD 468

07-Jun-18 HOLD 341

09-Oct-18 HOLD 187

19-Dec-19 BUY 312

13-Feb-20 BUY 289

Source: Bloomberg, Geojit research

www.geojit.com

FUNDAMENTAL DISCLAIMER: We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by GEOJIT without any liability/undertaking/commitment on the part of itself or any of its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report. The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. CRISIL has provided research support in preparation of this research report and the investment rational contained herein along with financial forecast. The target price and recommendation provided in the report are strictly Geojit’s views and are NOT PROVIDED by CRISIL. Further, CRISIL expresses no opinion on valuation and the associated recommendations. CRISIL has no financial liability whatsoever, to the subscribers / users of this report. JURISDICTION: The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. REGULATORY DISCLOSURES: GEOJIT’s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), GEOJIT affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership*: GEOJIT confirms that: It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein. Further, the Analyst confirms that: He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company. He, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered 2. Disclosures regarding Compensation: During the past 12 months, GEOJIT or its Associates: (a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company and is in receipt of compensation from the subject company.” (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report. 3. Disclosure by GEOJIT regarding the compensation paid to its Research Analyst: GEOJIT hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports. 4. Disclosure regarding the Research Analyst’s connection with the subject company: It is affirmed that I, Joe V Samuel, Research Analyst(s) of GEOJIT have not served as an officer, director or employee of the subject company 5. Disclosure regarding Market Making activity: Neither GEOJIT/its Analysts have engaged in market making activities for the subject company. Please ensure that you have read the “Risk Disclosure Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Exchange Board of India before investing.

Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom,

Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances:

grievances@geojit.com, For compliance officer: compliance@geojit.com.

Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No:

INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN

Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226