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HPCL: No respite in sight - Views on News from Equitymaster
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HPCL: No respite in sight
Jul 29, 2008

Performance summary
  • Topline increases by 59% YoY in 1QFY09.
  • EBITDA margins further contract to -1.2% in this quarter, down from -0.6% in 1QFY08.
  • Other income declines 50% YoY during the quarter.
  • Bottomline plummets deeper into the red on the back of receding operating profits and lower other income.


Standalone financial snapshot
(Rs m) 1QFY08 1QFY09 Change
Net sales 218,817 347,493 58.8%
Expenditure 220,102 351,603 59.7%
Operating profit (EBDITA) (1,285) (4,110)  
EBDITA margin (%) -0.6% -1.2%  
Other income 3,351 1,679 -49.9%
Interest 1,334 4,064 204.7%
Depreciation 1,798 2,367 31.6%
Profit before tax (1,066) (8,861)  
Tax (197) 20  
Profit after tax/(loss) (869) (8,881)  
Net profit margin (%) -0.4% -2.6%  
No. of shares (m) 339.4 339.4  
Diluted earnings per share (Rs)*   9.8  
Price to earnings ratio (x)*   22.2  
On trailing twelve months basis

What has driven performance in 1QFY09?
  • HPCL’s gross refining margins for 1QFY09 were US $ 15.23 per barrel (US $ 9.04 per barrel in 1QFY08) for its Mumbai refinery and US $ 17.05 per barrel (US $ 7.80 per barrel in 1QFY08) for its Visakh refinery.

  • HPCL’s financial results for 1QFY09 have been adversely affected due to high crude and product prices, which could not be fully passed on to the consumers. The under recovery for the quarter was partially compensated by way of discounts from upstream oil companies, i.e. ONGC and GAIL in respect of crude oil / LPG / kerosene purchased from them amounting to Rs 24 bn (Rs 9 bn in 1QFY08) and oil bonds to the tune of Rs 51 bn (Nil in 1QFY08).

  • During 1QFY09, HPCL’s subsidy claim from the government towards sale of domestic LPG and PDS kerosene amounted to Rs 1.4 bn (Rs 1.3 bn in 1QFY08).

    Cost break-up
    (Rs m) 1QFY08 1QFY09 Change
    Raw materials 210,796 334,839 58.8%
    % sales 96.3% 96.4%  
    Staff cost 1,805 3,819 111.6%
    % sales 0.8% 1.1%  
    Other expenditure 7,502 12,945 72.6%
    % sales 3.4% 3.7%  
    Total cost 220,102 351,603 59.7%
    % sales 100.6% 101.2%  

  • Staff cost zoomed 112% in 1QFY09 on the back of Rs 1.6 bn provided (net of ad-hoc relief already paid) as salary revision in respect of management employees.

What to expect?
At the current prices of Rs 218, the stock trades at price to earnings ratio of 6.1 times our FY10E consolidated earnings. We advise caution at this juncture as high crude prices 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.

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Feb 19, 2018 03:37 PM

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