In line with industry trend, Hindustan Petroleum Corporation Ltd. (HPCL) has reported sharp improvement in financial performance for quarter ended September '02. As mentioned in the BPCL quarterly report, administered pricing mechanism (APM) dismantling has yielded considerable gains for the industry. Marketing companies have revised petrol & diesel prices over the past five consecutive fortnights ending October 15, 2002.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares
Diluted Earnings per share*
Better topline performance, greater cost control and significant reduction in interest expense has facilitated a considerably higher rise in pre-tax profits, as compared to BPCL. In contrast to industry peer, despite similar refining yields, turnover of HPCL has been driven by realisations. Throughput and sales for quarter ended September '02 increased by 3.5% and 2.3% YoY respectively. Improvement in volumes is largely due to LPG, diesel, ATF and fuel oil. Gradual shift to natural gas, privatisation of IPCL and halt in operations at Nocil has impacted naphtha offtake of PSU refineries. Kerosene sales have also been impacted with companies pushing LPG as preferred domestic fuel. HPCL is among the larger lubricant players but has reported discouraging lubricant sales performance.
Higher utilisation rates has facilitated volumes growth while products purchased for re-sale have declined marginally. On the other hand, BPCL reported lower throughput and double-digit growth in products purchased for re-sale in September '02 quarter. Having said that, BPCL operates considerably above rated capacity and volumes are likely to materialise from re-sale products. Although products purchased for re-sale have declined, purchase value has increased by 15% YoY. Products purchased for re-sale are largely skewed towards erstwhile controlled products, which have supported blended refinery gate prices. APM dismantling, it seems, has led to more dynamic refinery gate pricing.
As mentioned earlier, improvement in realisations has led to expansion in margins. Having said that, similar to industry trend, the company has recorded inventory gains largely due to products purchased for re-sale. Also, included in margins is ad-hoc subsidy receivables from the Government amounting to Rs 5 bn for first six months on LPG and Kerosene. BPCL had reported subsidy receipts for first five months. Staff costs are down 30% YoY during the quarter.
Interest costs have been declining over the past six quarters. Softening interest rates and prompt receipt of subsidies is likely to have facilitated reduction in interest burden. With cooling in oil markets resulting in lower international petro product prices, domestic prices also have been reduced recently. Consequently, there could be a reversal in trading gains from inventory in the current quarter.
At the end of first quarter, the HPCL scrip was quoting at Rs 282. Currently, the scrip quotes at Rs 208 and is trading on a multiple of 6.2x 1HFY03 annualised earnings. Prior to build up of disinvestment expectations, HPCL historically traded in a band of 4x-6x earnings. With domestic industry recovering over the past year and automobile sector experiencing buoyancy, volumes are likely to register improvement. Adjustment in prices, which was not seen in 1QFY03, has considerably lifted operating margins. Consequently, we will re-look our numbers to factor in more dynamic pricing.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407