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: Challenges persist - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 8, 2002

    HPCL: Challenges persist

    As mentioned in our report for industry peers, the refining & marketing (R&M) sector continues to experience challenges in light of global excess refining capacity and theoretical dismantling of administered petroleum prices in domestic markets. Encouragingly, Hindustan Petroleum, similar to industry peers, has managed to register high single digit growth in topline.

    (Rs m) 1QFY02 1QFY03 Change
    Net sales 101,685 109,482 7.7%
    Other Income 629 592 -5.8%
    Expenditure 97,841 106,191 8.5%
    Operating Profit (EBDIT) 3,843 3,291 -14.4%
    Operating Profit Margin (%) 3.8% 3.0%  
    Interest 758 648 -14.6%
    Depreciation 1,194 1,371 14.9%
    Profit before Tax 2,521 1,864 -26.0%
    Tax 901 698 -22.5%
    Profit after Tax/(Loss) 1,620 1,166 -28.0%
    Net profit margin (%) 1.6% 1.1%  
    No. of Shares 338.8 338.8  
    Diluted Earnings per share* 19.1 13.8  
    P/E Ratio   20.5  

    In FY02, domestic refining sector exhibited negative growth in turnover due to sharp global and domestic economic downturn leading in poor realisations and slow down in volumes. The industry has reversed the trend in 1QFY03. After four consecutive quarters of lower turnover, HPCL has reported a growth in sales. As per reports, while industry throughput has increased, volume sales have not grown at an equal pace. We reckon, this is likely to have led to higher industry inventory. Domestic petroleum consumption is likely to have grown by 1% YoY in quarter ended June '02. Encouragingly, the decline in diesel consumption has been arrested. The fall is likely to have been broken by improved growth in the auto sector, especially commercial vehicles.

    Industry volumes have been impacted by reduced sales of naphtha and kerosene, which could be witnessing substitution from natural gas and liquefied petroleum gas (LPG) respectively. With flat industry growth, we reckon, R&M companies have preferred to only market petroleum products. Growth in sales for HPCL is likely to have materialised from increase in products purchased for re-sale, which is higher by 7% YoY.

    Operating profits have been hit largely by an 80 basis points slide in operating margins. Industry gross refining margins (GRMs) are likely to have been lower in 1QFY03. Reliance Petroleum (RPL) has also reported lower margins. International crude oil prices (Brent blend) were down 8.1% YoY at $ 25.1/ barrel over the concerned period. We reckon, YoY, blended international final product prices were lower over the same period, which could have dented GRMs. Despite changes in crude prices, global refining margins have remained squeezed over the past two years, which seems to indicate excess capacity in the industry. In the event of lower international petroleum prices, marketing margins could have increased YoY. Heating up of international crude and petroleum markets in 2002 is likely to have affected marketing margins compared to start of the calendar year.

    HPCL has reported lower interest expense over the past five consecutive quarters. It is likely that the amount of funds in the oil pool has been declining over this period. Similar to BPCL, an ad-hoc sum has been received by the company amounting to Rs 1.6 bn towards LPG and kerosene subsidy. This could have eased pressure on working capital requirements. The decline in operating profits and other income has adversely impacted pre-tax profits.

    At Rs 282, the scrip is trading on a multiple of 20.5x 1QFY03 annualised earnings. Compared to industry peers, the company has underperformed at the bottomline and results have come in below market expectations. Consequently, the scrip experienced selling in the previous week. In 2QFY02, the global economy was on a downturn with sliding petroleum prices. Therefore, YoY, realisations could improve in the current quarter leading to better GRMs. Valuations remain firm due to disinvestments.



    Equitymaster requests your view! Post a comment on "HPCL: Challenges persist". 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 Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    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?

    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!

    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 22, 2017 02:44 PM



    Compare Company With Charts