Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HPCL: On a strong footing? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 22, 2004

    HPCL: On a strong footing?

    Reliance and Essar Oil's entry into the retail segment of the petroleum sector is a good news for the economy. However, whether they would be successful in cornering a reasonable chunk of the market share remains to be seen, with HPCL, BPCL, IOC and IBP already established players in the business. In this article, we consider the strengths of HPCL and its future growth prospects.

    The strengths…

    • HPCL, with a retail network of 5,056 outlets (25% market share) and around 19 m LPG (liquefied natural gas) customers, is aggressively vying for more. While the company owns 71% of the retail network, it has plans to increase it to 75% over the medium term.

    • It has a market share of 34% in the lubricants business and a 17% market share in industrial fuels segment.

    • It has 2 refineries, one at Mumbai and the other at Visakhapatnam, with a total capacity of 13 MTPA (million tonnes per annum). HPCL controls over 1,101 kms of product pipelines accounting for around 15 MTPA of petroleum products. To put things into perspective, it accounts for 29% of the product pipeline capacity. In the southern markets, it has an assured access to petroleum products from 9.7 MTPA MRPL refinery, in which it has equity stake of around 17%.

    The expansion plans…

    • HPCL plans to set up a 9 MTPA refinery in the product deficit northern market. The estimated cost of the project is around 98 bn. However, the project shall be completed in phases. Initially, the refinery shall be set up with a capacity of 6 MTPA at a cost of Rs 83 bn and would be later extended to the targeted 9 MTPA. The company plans to complete the project by 2006. As of now, the company has a weaker presence in the northern market. Post the setting up of the plant, the company's market share is likely to increase and could translate into higher volume growth.

      However, demand in the domestic market has to increase for the company to reap the benefits of expansion completely. Though exports are a possibility, it could have an impact on margins. We have exercise caution in our operating margins in the next two years owing to strengthening of crude prices and competition.

    • HPCL is set to enter the upstream segment of exploration and production of oil and natural gas. This backward integration shall help the company to curtail its dependence on external sources for the supply of crude to a great extent. Having said that, the risk profile of this diversification is on the higher side and it remains to seen how this new venture unfolds.

    The stock currently trades at Rs 466 implying a P/E multiple of 8.6x annualised 9mFY04 earnings. The company posted a more than 50% growth in net profits for 9mFY04 largely due to the subsidy sharing agreement where ONGC and GAIL were roped into share the burden of cross-subsidies. Per se, demand for petro products like diesel have been weak and our interaction with the management in the past indicates that it is likely to remain so in the near future. While topline growth is a cause of concern, operating margins could come under pressure owing to the recent spurt in crude prices. With elections round the corner, politics will continue to dominate when it comes to pricing of diesel and petrol. These factors do make the stock risky in the medium term.



    Equitymaster requests your view! Post a comment on "HPCL: On a strong footing?". Click here!


    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    HPCL: A loss making quarter (Quarterly Results Update - Detailed)

    Dec 29, 2015

    HPCL has reported 18.6% YoY decline in the topline and losses worth Rs 3.2 bn at the bottomline level in the quarter ended June 2015.

    HPCL: Higher GRMs boost profit (Quarterly Results Update - Detailed)

    Sep 8, 2015

    HPCL has reported 12.6% YoY decline in the topline while bottomline grew by around 34.5 times (YoY) in the quarter ended June 2015.

    Mahanagar Gas Ltd (IPO)

    Jun 21, 2016

    Should one subscribe to Mahanagar Gas IPO?

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)



    Detailed Financial Information With Charts