X

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.
Must prove its strength... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 22, 2000

    Must prove its strength...

    Not too many fund managers are looking at Hindustan Petroleum Corp. Ltd. (HPCL) these days. For that matter not too many fund managers are looking at refineries at all. So what does that mean for India's second largest integrated oil company? Read on to find out.

    Only Indian Oil Company is larger than HPCL in the domestic integrated oil sector. It operates at a refining capacity of 10 million tonnes per annum and has a lube refinery with a manufacturing capacity of 330,000 tonnes per annum

    HPCL's presence in the country is pervasive. It has over 4,300 petrol pumps, which constitutes close to 28 percent of total petrol pumps in the country. Moreover, it has more than 1,600 kerosene dealers, 9 aviation fuel stations and over 1,460 liquefied petroleum gas (LPG) distributors. A lot of credit for HPCL's impressive network can be attributed to the fact that it is government controlled and came on the scene long before the others. The company's expansive network ensures that it enjoys a competitive edge over rivals and new entrants. The latter have to establish a new network from scratch, which is expensive, and therefore have to enter into marketing tie-ups with the likes of HPCL and BPCL.

    Not satisfied with its existing network, HPCL is constantly trying to devise ways to enhance its presence in the country. It was with this objective that the company spruced up its retail distribution network by adding convenient stores. Although the concept of convenience stores is in the nascent stages, over a period of time this could contribute significantly to the company's revenues.

    While distribution is undoubtedly critical for HPCL, the company has not lost focus on enhancing its product range. It promoted Mangalore Refinery and Petrochemicals Ltd. (MRPL) in a venture with the Aditya Birla Group and owns 26 percent stake in the company. With this venture, HPCL has ensured that it receives a steady supply of petro products to services its retail outlets. As MRPL enhances its production capacity to 9 million tonnes per annum, HPCL will have large pool from where it can access products to handle its distribution requirements.

    As the government looks at disinvestment seriously to shore up the fiscal deficit, HPCL and BPCL will be major beneficiaries. Reduction of the government's stake in HPCL (to below 51 percent) will free HPCL from many of the ills (read inefficiencies) that had afflicted the company in the past. Add to this the new management and the company's prospects could change significantly. HPCL has always been a sound company fundamentally. Its lagged behind the foreign oil majors in technology and work ethic. All this could change once a more experienced partner takes charge.

    Margins under pressure...
    (Rs m) 3QFY2000 3QFY1999 Change
    Net Sales 92,727.9 62,270.4 48.9%
    Other Income 207.7 313.8 -33.8%
    Expenditure 88,898.4 58,237.2 52.6%
    Interest 327.9 248.3 32.1%
    Depreciation 1,089.8 962.2 13.3%
    Profit before Tax 2,619.5 3,136.5 -16.5%
    Tax 410.0 940.7 -56.4%
    Profit after Tax/(Loss) 2,209.5 2,195.8 0.6%
    Net profit margin (%) 2.4% 3.5%  

    A question uppermost in the minds of most oil analysts is who is HPCL's suitor(s). No one may be ready to hazard a guess at this stage, but Reliance Petroleum and Royal Dutch Shell have evinced some interest in the company. Another possibility, which may turn out to become a reality, is a merger between BPCL and HPCL. This view gains further credence in the light of the agreement between the two oil companies to share terminals at two locations near Mumbai, in order to exploit synergies of operation. Earlier the Nitish Sengupta committee had actually recommended the merger of the two oil PSUs in order to compete more effectively under the deregulated era. However, then HPCL had opposed the recommendation of the committee.

    However, all this talk of mergers cannot drive away the concerns that are inherent in the oil and gas sector. For one the margins in the refining sector are bound to be affected by the new capacities that will go onstream leading to a glut in the market. Dumping from foreign oil majors is another worry, although the government has tried to pacify domestic companies by providing protection in the form of higher duties. Moreover, petroleum product prices of a number of commodities are still regulated by the government, which stifles profitability. Another irritant for oil companies is their dependence on the Oil Coordination Committee for payments, which are more often than not delayed. This has an adverse impact on the cash flows of the company.

    Given the concerns outlined above, it is not surprising to see why most fund managers give the oil sector a miss. Their obsession with software stocks has made them overlook the staid, unexciting refinery stocks. Consider this, HPCL over the past 12 months has grown only 11.9 percent, while the BSE Sensex in the same period has appreciated by over 40 percent.

    However, clearly HPCL won't lose too much sleep over how fund managers perceive the stock. But competition in the refining sector is something that will give it some food for thought. As private (and efficient) players like Reliance Petroleum enter the market, HPCL's role could be reduced to that of a distributor with moderate refining prowess.

     

     

    Equitymaster requests your view! Post a comment on "Must prove its strength...". 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

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More
    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

    HPCL SHARE PRICE


    Aug 24, 2017 11:07 AM

    TRACK HPCL

    HPCL - HIND.OIL EXP COMPARISON

    Compare Company With Charts

    COMPARE HPCL WITH

    MARKET STATS