Hindustan Petroleum: Marketing skewed portfolio drives 20% book erosion

研报英文原文证据摘录

Hindustan Petroleum: Marketing skewed portfolio drives 20% book erosion

Forecast returns

Forecast price appreciation -11.7%

Forecast dividend yield 5.4%

Forecast stock return -6.4%

Market return assumption 12.0%

Forecast excess return -18.3%

Company Description

Hindustan Petroleum (HPCL) is one of India's major oil marketing companies, with ONGC

holding a 53.5% stake. In FY20, it had a domestic petroleum product market share of about

18% (domestic sales volume of 37.8mmt), with turnover of Rs2.9trn. Via its associates/JVs,

HPCL has interests in four strategically located refineries. It has India's second-largest cross-

country product pipeline network (3,775km), supporting its retail reach via more than 18,000

retail outlets. HPCL is also a leading lube oil marketer.

Valuation Method and Risk Statement

We value Indian SOE oil marketing companies (OMCs) such as Hindustan Petroleum on PE, as

they derive a significant portion of their earnings from equity accounted JVs, which we

believe are not properly captured in EV/EBITDA methodology.

Risks: OMCs’ earnings are sensitive to crude oil prices and refining margin volatility.

Government intervention in retail fuel pricing could pose material upside/downside risks to

marketing margins, as has occurred over the past few years. OMCs also face the risk of fuel

subsidies if oil prices rise sharply and the government intervenes in free pricing. Also, delays in

subsidy payments by the government/upstream companies could drive up OMCs’ working

capital, debt and interest costs. A less-/more-than-expected market share gain by the private

sector could also impact our marketing volume and earnings assumptions for SOE OMCs.

OMCs’ and stand-alone refiners' earnings are also prone to delays in new refinery and

pipeline projects.