HPCL Q2 Results Review - Subdued Refining Margin Drags Performance: Motilal Oswal

Motilal Oswal Report

Hindustan Petroleum Corporation Ltd. remains our preferred pick among the three oil marketing companies. We model a marketing margin of Rs 3.3/litre for both motor spirit and high speed diesel in FY26/27, while the current MS and HSD marketing margins are Rs 12.6/litre and Rs 10.4/litre, respectively.

We view the following as key catalysts for the stock:

1. de-merger and potential listing of the lubricant business,

2. the commissioning of its bottom upgrade unit, and

3. the start of its Rajasthan refinery by end-Q4 FY25.

HPCL currently trades at 1.4x FY26E price/book, which we believe offers a reasonable margin of safety as we estimate FY26E return on equity of 15.3%.

Our SoTP-based target price includes:

1. The standalone refining and marketing business at seven times Dec'26E Ebitda.

2. Rs 37/share as potential value unlocking from de-merger of the lubricant business.

3. HPCL-Mittal Energy Ltd. at 12 times P/E based on its FY24 PAT (HPCL’s share), deriving a value of Rs 35/share.

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