HPCL jumps 4%: Will subsidy burden become nil in FY15?

Shares of HPCL jumped over 4 percent intraday on Thursday as rise in refining profitability and marketing profit improved March quarter earnings. It reported net profit of Rs 4609 crore as against loss of Rs 1734 crore sequentially. During the period, its margins jumped 9.2 percent from negative 1.9 percent in last quarter. Brokerages are upbeat about the company. Deutsche Bank has a buy rating on the stock with a target of Rs 470 per share. It feels that there will be nil oil subsidy burden on HPCL from FY15 onward and hence refining segment performance will improve. In FY14, HPCL had to bare oil subsidies of Rs 480 crore. Its refinery volumes improved 13 percent Q-o-Q to 4.3 MMT (flat Y-o-Y) with inventory gain of Rs 450 crore and forex gain at Rs 500 crore.

Bank of America Merill Lynch retains buy on it with a target of Rs 455 per share. It says that FY14 witnessed decline in loss of refining subsidiary and there was a rise in EPS despite 108 percent Y-o-Y jump in net subsidy bearing of Rs 480 crore. Its gross refining margin (GRM) was strongest in fourth quarter at USD 4.7/bbl. However, Barclays is underweight on the stock with a price target of Rs 250. “Consolidated EPS was 38 percent lower, likely hurt by losses in Bhatinda and Biofuels. HPCL’s investments and organic capex have yielded little over the last decade even as it looks to expand further – it announced USD 3 billion in additional refining expansions- weighing on returns further,” it said in a note.

At 11:40 hrs, the stock was quoting at Rs 416.80, up Rs 8.30, or 2.03 percent on the BSE.

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