Hindustan Petroleum Corporation Ltd., has reported results very similar to its peer, Bharat Petroleum Corporation Ltd. (BPCL). The companies financials have suffered on the count of firm crude oil prices for the quarter ($26 / barrel), weakening in final product prices and sharply reduced growth in product offtake.
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Crude throughput growth for the industry, during the first four months of the fiscal, has declined from 34.6% to 5.4% YoY. During the first six months of the current fiscal, HPCL registered throughput growth of 3.2% to 6.1 m metric tonnes (MMT). However, market sales were lower by 3.1% over the same period. The weakening global fundamentals has led to lower petroleum product prices, which has impacted refinery realisation, further hurting turnover.
Firm crude oil prices combined with lower realisations on petroleum products has eroded gross refining margins (GRMs) of the industry. Consequently, operating margins are lower for the quarter and half-year ended September '01 by 60 and 30 basis points respectively. Raw material costs for 1HFY02 have increased marginally by 1.8%, which seems to indicate no change in oil prices YoY. The drop in operating expenses is primarily on account of re-sale products, which has shown a decline of 6% YoY for 1HFY02. The expense head constitutes 65% of total expenses.
The company, which was a net recoverer from the oil pool account seems to have become a net contributor. Consequently, amount of funds blocked in the oil pool account (OPA) could have reduced. This is likely to have improved working capital management leading to lower interest expense. Other income has grown sharply, which has cut back the extent of decline in bottomline.
Effective tax rate over the concerned periods has increased sizably. However, this is due to the inclusion of deferred tax in the current fiscal. Deferred tax for the quarter and half year fiscal '02 is Rs 270 m and 690 m respectively.
At Rs 126.2 the HPCL scrip is trading on a multiple of 7.1x 1HFY02 annualised earnings. Historically, the scrip traded on valuations of 5x earnings. Consequently, there could be a reversion to the mean. As per latest reports, the Government is contemplating on selling its stake in HPCL and BPCL to strategic investors before deregulation in the industry. This could be holding up the stock.
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