HPCL: MRPL leech - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HPCL: MRPL leech

Oct 12, 2001

Few refinery stocks have made an impressive comeback after the September 11 incidents. Exactly a month later, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) have not only recouped their losses but are trading higher by 7.6% and 6.1% respectively over this period. On the other hand, Indian Oil (IOC) and Reliance Petroleum (RPL) are down 1.8% and 11.2% respectively.The rise in these stocks could be due to the strong value they offer. At their lows, BPCL and HPCL were trading at 4.2x and 3.9x 1QFY02 annualised earnings. But then again, for the last 18 months, they have always traded in that range. Any rise seems to be driven as visibility on dismantling of APM and disinvestment improves.

The HPCL scrip, however, has some new concerns. Mangalore Refinery & Petrochemicals Ltd. (MRPL), jointly promoted by the A.V. Birla group and HPCL, has amassed losses of Rs 5.9 bn over the last two years and is expected to report a loss of 2.3 bn for the current fiscal. The poor financial numbers, primarily, have led to the A.V. Birla group wanting out from the venture. The joint-valuers of the A.V. Birla stake have reportedly recommended a valuation range of Rs 14 - Rs 17 per MRPL share. Consequently, the stock has moved up 20% since the announcement. The acquisition, based on the joint-valuation report, is expected to cost HPCL Rs 4.1 bn.

Although acquiring the 37% Birla stake in MRPL is likely to give HPCL complete control of an additional 9 MMTPA of refining capacity it is likely lead to bleeding in the bottomline. MRPL is expected to post a loss over the next two years, which could adversely impact HPCL's consolidated earnings, to be declared from FY02. Also, the deal is likely to hurt the company's investment ratios (RoI) on unconsolidated basis by an estimated 80 basis points.

In addition, MRPL is reeling under an adverse capital structure with a debt / equity ratio of 7.9x in FY01. The company is in dire need of financial restructuring, which seems to have been relegated to the back seat with one partner wanting out and search for a fresh strategic partner continuing. Assuming no conversion of debt to equity, MRPL requires Rs 37.7 bn to bring down its leverage ratio (debt / equity) to 2:1.

It seems most likely that HPCL will need to pump in additional funds to rebalance the capital structure. Further, MRPL plans to foray into marketing of controlled petroleum products, which is likely to be deregulated by FY02 end. This could add to the financial burden of HPCL. That said, HPCL has stated it is evaluating the report but no decision has been taken.

Equitymaster requests your view! Post a comment on "HPCL: MRPL leech ". Click here!

  

More Views on News

HPCL 2020-21 Annual Report Analysis (Annual Result Update)

Oct 27, 2021 | Updated on Oct 27, 2021

Here's an analysis of the annual report of HPCL for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of HPCL. Also includes updates on the valuation of HPCL.

HPCL Shares Under Pressure After Profit Declines in June Quarter (Views On News)

Aug 5, 2021

Rising crude oil prices and forex woes weigh on HPCL's quarterly numbers.

HPCL Reports Its Highest Annual Profit (Views On News)

May 21, 2021

HPCL shares scale fresh 52-week highs as the refiner posts a record-breaking bottomline.

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HPCL SHARE PRICE


Dec 6, 2021 09:23 AM

TRACK HPCL

HPCL - RELIANCE IND. COMPARISON

COMPARE HPCL WITH

MARKET STATS