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HPCL: Other income saves the blushes

Jan 28, 2010

Performance summary
  • Topline decreases by 5% YoY in 3QFY10 due to lower realisations.
  • EBITDA margins contract from 1.8% in 3QFY09 to 1.3% during the quarter.
  • Other income increases by 217% YoY during 3QFY10.
  • Interest costs decline by 72% during the quarter.
  • Bottomline turns positive despite the lower turnover and operating margins due to higher other income.
  • For 9mFY10, bottomline turns positive despite a 23% decline in the topline due to better margins and higher other income.

    Standalone financial snapshot
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Net sales 294,706 278,742 -5.4% 998,029 769,393 -22.9%
    Expenditure 289,398 275,198 -4.9% 1,021,679 750,869 -26.5%
    Operating profit (EBDITA) 5,308 3,544 -33.2% (23,650) 18,524  
    EBDITA margin (%) 1.8% 1.3%   -2.4% 2.4%  
    Other income 710 2,250 217.2% 2,777 5,780 108.2%
    Interest 7,716 2,202 -71.5% 17,049 7,398 -56.6%
    Depreciation 2,482 3,007 21.2% 7,268 8,469 16.5%
    Profit before tax (4,180) 585   (45,191) 8,438  
    Exceptional item - -   - (2)  
    Tax 40 271 576.8% 100 3,001  
    Profit after tax/(loss) (4,220) 314   (45,291) 5,438  
    Net profit margin (%) -1.4% 0.1%   -4.5% 0.7%  
    No. of shares (m)         339  
    Diluted earnings per share (Rs)*         167  
    Price to earnings ratio (x)*         2  
    *On trailing 12 months earnings

    What has driven performance in 9mFY10?
    • HPCL's average gross refining margin during 9mFY10 was US$ 2.51 per barrel as compared to US$ 1.75 per barrel during 9mFY09.

    • The company achieved a crude throughput of 3.73 m tonnes (MMT) during 3QFY10 as opposed to 4.09 MT in 3QFY09. For 9mFY10, HPCL achieved 11.85 MT as opposed to 11.64 MT during 9mFY09.

    • EBITDA margins contracted mainly on account of higher other expenditure. Raw material costs declined by 1.5% YoY (as a percentage of sales) during 3QFY10.

      Cost break-up
      (Rs m) 3QFY09 3QFY10 Change
      Raw materials 278,223 258,985 -6.9%
      % sales 94.4% 92.9%  
      Staff cost 4,245 3,143 -26.0%
      % sales 1.4% 1.1%  
      Other expenditure 6,930 13,071 88.6%
      % sales 2.4% 4.7%  
      Total cost 289,398 275,198 -4.9%
      % sales 98.2% 98.7%  

    • HPCL received subsidies on domestic LPG and Kerosene to the tune of Rs 4.5 bn during 9mFY10, as compared to Rs 4.3 bn during 9mFY09.

    • Upstream oil companies, i.e., ONGC and GAIL compensated for the under-recoveries of HPCL by providing discounts amounting to Rs 19 bn during 9mFY10 (Rs 66 bn in 9mFY09) on crude oil / LPG / kerosene purchased from them.

    • The government of India has confirmed a budgetary support of Rs 25 bn towards under- recoveries on sale of domestic LPG and Kerosene. HPCL has accounted for Rs 19 bn accordingly in 9mFY10 as compared to oil bonds received in 9mFY09 to the tune of Rs 127 bn.

    • Other income galloped by 217% YoY during 3QFY10 turning the bottomline positive.

    What to expect?
    At the current price of Rs 344, the stock trades at a multiple of 7 times our estimated FY12 earnings. We continue to advise caution on the stock as interest costs and regulatory concerns will continue to impact the short-term performance of the company, while poor return on incremental capital expenditure will impact the long-term performance of the company. Moreover, given their ‘aam aadmi’ mandate, the government seems unlikely to bite the bullet when it comes to genuine deregulation of fuel prices.

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    Aug 16, 2019 (Close)